John Mauldin has often written about the Fed’s abysmal track record in managing the economy. Here Lacy Hunt and Van Hoisington of Hoisington Investment Management explain the reasons for the Fed’s consistently poor track record.
They start by considering the Fed’s ‘dual mandate,’ which sets ‘the goals of maximum employment, stable prices and moderate long-term interest rates.’ (And yes, that is actually three goals, not two.)
But a problem arises, the authors note, ‘because considerable time elapses between the implementation of the monetary actions designed to follow the mandate and when the impact of those actions take effect on broader business conditions.’
The time lag can easily be three years or longer, with the result that policy changes often end up being pro-rather than countercyclical.
To make matters even worse, ‘the economic risks from adherence to this dual mandate are now much greater than historically due to the economy’s extreme over-indebtedness, poor demographics and a fragile global economy.’
This post was published at Zero Hedge on Jul 31, 2017.
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