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Focus on the target, not the instrument

Summary:
This tweet caught my eye: While rising three-year yields might represent a lack of commitment on the Fed’s part, rising interest rates are equally consistent with bond market participants now becoming more optimistic about the economy. This might well be good news. Interest rates are only a means to an end; the only credibility that matters is the Fed’s 2% AIT. Tags:

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This tweet caught my eye:

Focus on the target, not the instrument

While rising three-year yields might represent a lack of commitment on the Fed’s part, rising interest rates are equally consistent with bond market participants now becoming more optimistic about the economy. This might well be good news.

Interest rates are only a means to an end; the only credibility that matters is the Fed’s 2% AIT.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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