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Strange Bedfellows Alliance For New Fed Target

Federal Reserve Bank Chairman Ben Bernanke
Getty Images
Federal Reserve Bank Chairman Ben Bernanke

This is getting interesting.

In his latest US Economics Analyst note, Goldman Sachs economists Jan Hatzius and Sven Jari Stehn say that the Federal Reserve should massively expand asset purchases with the goal of bringing nominal GDP back to pre-crisis levels.

Joe Weisenthal at Business Insider quotes from the note:

With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.

This is something that's long been supported by liberal bloggers such as Ryan Avent at the Economist. But it also recently got pixel-space in National Review.

To be honest, this kind of consensus makes me uncomfortable. But I haven't done enough thinking about NGDP targeting versus inflation targeting to have an informed opinion on this yet.

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