Did "Tight" Fed Policy Cause the Financial Crisis?

[Draggingtree]

Mises: Did "Tight" Fed Policy Cause the Financial Crisis?

DECEMBER 15, 2015 Robert P. Murphy

 

Recently Senator Ted Cruz aggressively questioned Janet Yellen on the Fed’s possible role in causing the financial crisis and subsequent recession. In particular, he claimed that “in the summer of 2008” the Fed “told markets that it was shifting to a tighter monetary policy,” and that this announcement “set off a scramble for cash, which caused the dollar to soar, asset prices to collapse, and CPI [growth — RPM] to fall below zero, which set the stage for the crisis.” Cruz asked Yellen if she agreed with Bernanke’s view from his new book, in which he says the Fed made a mistake by not cutting rates in September 2008.

 

In response, Yellen at first seemed befuddled by Cruz’s line of inquiry. She said that without further review she wasn’t going to second-guess Bernanke’s opinion that the Fed should’ve cut rates sooner. But she was quite sure that the Fed’s possibly delayed reaction didn’t cause the financial crisis, and in any event, Yellen reminded Cruz that by December 2008 the Fed had cut the federal funds rates down to 0 percent.

[Draggingtree]

Janet Yellen: Armed, Dangerous, And Lost

MARCH 22, 2016 David Stockman

Simple Janet should have the decency to resign. The Fed’s craven decision last week to punt on interest rate normalization is not merely a reminder that she is clueless and gutless; we already knew that much.

 

Given the overwhelming facts on the ground — 4.9% unemployment, 2.3% core CPI, and a 23.7X PE multiple on the S&P 500 — her decision to “pause” after 87 months of ZIRP actually proves she is a blindfolded monetary arsonist — armed, dangerous, and lost.

 

That’s right. In the midst of vastly inflated and combustible financial markets, the all-powerful Fed is being led by a Keynesian school marm stumbling around in an explosives vest. She apparently has no idea that a 38 bps money market rate is not a pump toggle on some giant bathtub of GDP; it’s an ignition fuse that is fueling the greatest speculative mania in modern history.

 

Janet and her posse of pettifoggers don’t even have the “Humphrey-Hawkins made me do it” excuse any longer. The truth is, there is nothing in the act that says they must hit 2.00% inflation to the second decimal point or anything else more specific than “stable prices.” Nor is there any quantitative target for full employment, let alone something like 4.85% — since we apparently are not there at 4.90%.

https://mises.org/blog/janet-yellen-armed-dangerous-and-lost