The Fed has raised its target policy rate by more than 4 percentage points in the last year, and ‘we are just now entering the window where the effects might start to be noticed,’ Christina Romer said
The Federal Reserve’s effort to shock the economy back to lower inflation is in its early days, making it tough for the U.S. central bank to avoid overdoing it with higher-than-needed interest rates, a top economic adviser in the Obama White House said after a fresh review of Fed policy since the Second World War.
“Policymakers are going to need to dial back before the problem is completely solved if they want to get inflation down without causing more pain than necessary,” she said. Romer, outgoing president of the AEA, is an expert on the causes and recovery of the Great Depression of the 1930s and argued as CEA chair for a much larger fiscal response to the 2007-2009 recession than was approved. She collaborated with Berkeley economist David Romer, her husband, to mine Fed meeting transcripts and minutes dating back to the 1940s for the review of U.S. central bank policy.
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