But, unfortunately, the way the Fed is putting this long-term monetary policy framework into practice is likely to result in more volatile interest rates and more risk of recession. If, for example, people expected 2% inflation, then a zero-percent nominal federal funds rate would be equivalent to a real (inflation-adjusted) rate of negative 2%. However, if people expected only 1% inflation, then the Fed could take the real rate no lower than negative 1%. Over the past 75 years, every time the unemployment rate has moved up this much, a full-blown recession has occurred along with a much more substantial increase in the unemployment rate. He served as president of the Federal Reserve Bank of New York from 2009 to 2018, and as vice chairman of the Federal Open Market Committee.

Source: Mint June 07, 2021 10:52 UTC