Dean Baker

“The Fed is responsible for the financial markets. Financial markets hate inflation. Particularly bond markets. If the inflation rises, the Fed has to answer to them. If the unemployment rate is 6% and you could be down at 4% so that means there are 5 million people out of work unnecessarily, they might feel bad about it but they don’t have to answer to them. Alan Greenspan will not get called on the carpet because of that but he will get called on it if inflation goes to 4%. What are you doing! How come you are not jacking up interest rates? There is a huge asymmetry. This is the politics of the Fed. The Fed is very well isolated from democratic political pressures but it is not hard for the financial markets to influence the Fed. We have this NAIRU doctrine that if we let the unemployment rate get below 6% we have inflation and therefore we are going to deliberately raise the interest rate to slow the economy to keep people from getting jobs. No one knows that.”
― Dean Baker