Fed Repeats Error of 2008 With Tight Money

Following today’s economic debates is giving me deja vu, and not the good kind. We seem to be repeating the biggest policy mistake the U.S. made after the financial crisis a dozen years ago — and doing it, as before, with our eyes closed.

Back then, the Federal Reserve kept monetary policy too tight in the face of economic weakness, prolonging the recession and weakening the recovery. But it faced essentially no pressure to loosen policy, because most observers mistakenly believed it was already extremely loose. Conservatives generally argued that monetary policy was too accommodative and posed too great a risk of high inflation. Liberals maintained that the Fed had it right but had done all it could, and that Congress needed to provide additional fiscal stimulus as well.