Payne's Perspective: November 21, 2022: Tough Times But Much to Be Thankful For
It was an interesting week that showed me more about the moxie of the market than the huge rally in the prior week. That’s because it took a mighty blow from St Louis Fed President James Bullard.
“The chart suggests that while the policy rate has increased substantially this year, it has not yet reached a level that could be justified as sufficiently restrictive, according to this analysis, even with the generous assumptions,” he said. “To attain a sufficiently restrictive level, the policy rate will need to be increased further.”
Monetary Policy Rules
Bullard used Taylor-type monetary policy rules to obtain recommendations for the value of the policy rate given current macroeconomic conditions. He noted that a Taylor-type policy rule with generous assumptions would give a minimal recommended value for the policy rate. In contrast, less generous assumptions will give an upper bound for a desirable target range for the policy rate. He said the recommended “zone” is the area between the two bounds.
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