“What’s Wrong with Fed Policy?”
“Investor reaction to Ben Bernanke’s apparent focus on price indices — jumping into the stock market when he hints that he may not raise rates, and jumping out when they suspect he will — is understandable. These reactions do not imply that investors prefer inflation, but rather that they expect the Fed may be overshooting or undershooting. The following historical graph makes it clear that investors prefer stable price levels. Stock prices rose at anemic rates in the 1960s and 1970s as inflation accelerated from its earlier, moderate pace. Conversely, when inflation decelerated in the 1980s, stock price performance turned sharply higher, reaching its zenith in the 1990s as inflation receded to a level last witnessed three decades earlier.” Read more.
“What’s Wrong with Fed Policy?”
Reuven Brenner and Martin Fridson
National Review Online, July 17, 2006.
Image by Gregory Szarkiewicz / FreeDigitalPhotos.net.
