Scott Sumner is a market monetarist economist. He believes economic booms and busts are driven by the growth rate of nominal GDP. One of his favorite adages is "never reason from an interest rate change," meaning that changes in nominal interest rates never tell the whole story; why they changed is more important. In this blog post, Sumner lays out his opinion that Kevin Warsh's desire to shrink the Fed's balance sheet may be more important than his desire for low interest rates. A balance sheet contraction would tighten monetary policy and could require a compensatory loosening of interest rates. Sumner seems to believe that Warsh thinks it will. Warsh was a monetary policy hawk during the depths of the Great Recession, arguing for higher interest rates (whereas Sumner argued for more monetary stimulus). Sumner's opinion is an alternative to the prevailing view that Warsh became a dove to please Trump, though Sumner acknowledges he may be wrong.
Posted by HopeHumilityLove
2 Comments
If nothing else, a Hawkish Fed chair helps lower expectations of future inflation, which as we know from the NKPC, helps inflation today
I don’t expect Fed policy to change all that much, but there *is* significant room to reduce the fed balance sheet while remaining dovish on rates (~$6.1 trillion between TGA, currency in circulation, and bank reserves)
He is on Coupang board of directors….I’m suspecting he is a corrupt crony of Trump who does whatever he is told by White House to do so.