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Ten Years Ago: A Federal Reserve Not Understanding the Situation at All

Summary:
Occurrences in August 5, 2008, FOMC Meeting Transcript: 322: Inflation 029: Liquidity 029: Spreads 028: Unemployment 011: Crisis 001: Solvency 000: Minsky 000: Lehman 000: Bear-Stearns A Federal Reserve looking in exactly the wrong direction ten years ago: Federal Reserve: FOMC Meeting Transcript: BERNANKE: "On inflation, I do have concerns, as everyone else does.... We will continue to see that high level of prices being passed through into the core... ...but I would argue that if—and this is a very big “if”—commodity prices do begin to stabilize within the general range of what we see now, I think that the inflation concerns will moderate over time because they will have lost essentially their driving force.... I want to be very clear: I think that

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The Ahistorical Federal Reserve by J Bradford DeLong Project Syndicate

Occurrences in August 5, 2008, FOMC Meeting Transcript:

322: Inflation
029: Liquidity
029: Spreads
028: Unemployment
011: Crisis
001: Solvency
000: Minsky
000: Lehman
000: Bear-Stearns

A Federal Reserve looking in exactly the wrong direction ten years ago: Federal Reserve: FOMC Meeting Transcript: BERNANKE: "On inflation, I do have concerns, as everyone else does.... We will continue to see that high level of prices being passed through into the core...

...but I would argue that if—and this is a very big “if”—commodity prices do begin to stabilize within the general range of what we see now, I think that the inflation concerns will moderate over time because they will have lost essentially their driving force.... I want to be very clear: I think that containing inflation is enormously important, and I think it is our first responsibility. We need to watch this very carefully. I think there will be continued pressures even if commodity prices don’t rise, but I do think there is also a chance that we will see a moderation of this problem going forward....

There has been a lot of discussion about the appropriate withdrawal of stimulus. Again, I don’t think I accept the idea that we are currently in an extremely stimulative situation. However, if financial markets were to normalize, for example, that would lead to a more stimulative situation. I would like to say just a word about that. That is to say that the speed at which we remove the accommodation—and I think it is clear we do have to do that relatively soon—should depend to some extent on how inflation evolves...


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Bradford DeLong
J. Bradford DeLong is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research. He was Deputy Assistant US Treasury Secretary during the Clinton Administration, where he was heavily involved in budget and trade negotiations. His role in designing the bailout of Mexico during the 1994 peso crisis placed him at the forefront of Latin America’s transformation into a region of open economies, and cemented his stature as a leading voice in economic-policy debates.

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