Since the crisis, my bias on monetary policy has been dovish. The two main reasons for this are a) I am more interested in ends than means and b) I have been able to see through the Fed’s occasional expression of wishful thinking. That policy was “extremely accommodative” in part because of QE was one such expression. There were others too.
A while ago, I adopted a policy of Zip It! because my arguments were discounted in markets and because I figured the Fed could begin gently to raise interest rates even while respecting them. See, for example, here. I continue to view rates duration as a source of return-free risk, to use Jim Grant’s (one?) cool idea. I guess I should have been outright bearish fixed income. But I am sluggish these days. And if I were nimble, I would not have ended up a business economist.
This shift had nothing to do with Trump. Like most, I figured he would lose, at least as the base case. But now that he is in, yeah, his plan for fiscal “stimulus”, extremely belated, would probably mostly simulate interest rates, relative to the baseline they would otherwise have followed. Importantly, this stimulus to interest rates might well prove temporary, by which I mean less enduring than a business cycle, but we can jump off that bridge when we come to it.
Still, I also can’t help myself when I see nonsense like El-Erian whining about “artificially” low interest rates. Money is a human artifice and interest rates are the opportunity cost of holding it, so what would be a non-artificial interest rate? I am not being pedantic or just pedantic. This is a serious question. What is this interest rate found in nature of which you speak? *
There is none. Money does not grow on trees you know. I mean this in the deeply philosophical sense, not as your dad said it.
The search for what is natural in monetary policy has been a huge distraction and extremely easy fade ever since the crisis. Well, from the beginning of the crisis to maybe about a year ago. It was all pretty silly. But now it is both silly and not really worth fighting about.
Sometime in the future, there will probably again come an opportunity to short this very stupid idea. Patience.
* No answering the natural rate of interest. That natural rate of interest is an intellectual construct, clearly a human artifice, not the rate of interest found in nature.