Wednesday, October 31, 2012


...will suffice when justifying current monetary policy.  The following quote is from the President of the Minneapolis Fed, toeing the line for whatever his chosen ministry wishes to do.

And thus, as if by magic, a "best possible forecast" is found to be more useful than a current measurement.  Presumably, these officials don't think the Efficient Market Hypothesis applies to inflationary measures, nor do they believe that current markets in TIPS discount expected inflation.

Basing the Fed reaction function (and subsequent incentive set for the greater economy) on hand-waiving forecasts is not exactly prudent given the Fed's less than perfect record of forecasting the economy.

Current monetary policy is typically thought to affect inflation with a one- to two-year lag. This means that we should always judge the appropriateness of current monetary policy using our best possible forecast of inflation, not current inflation.

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