Is the Fed a Panacea? Sumner Says Yes, While Bernanke Says No

     So who should we believe?

     "It's generous of the WSJ writers to note, as they do, that "economic forecasting isn't easy." They should know, since the Journal has been forecasting a breakout in inflation and a collapse in the dollar at least since 2006, when the FOMC decided not to raise the federal funds rate above 5-1/4 percent."

    "However, the WSJ editorialists draw some incorrect inferences from the FOMC's recent over-predictions of growth. Importantly, they fail to note that, while the FOMC (and virtually all private-sector economists) have been too optimistic about growth, they have also been consistently too pessimistic about unemployment, which has fallen more quickly than anticipated. The unemployment rate is a better indicator of cyclical conditions than the economic growth rate, and the relatively rapid decline in unemployment in recent years shows that the critical objective of putting people back to work is being met. Growth in output has been slow, despite solid job creation, because productivity gains have been slow—perhaps as the result of the financial crisis, which hammered new business formation and investment in research and development, perhaps for other reasons. But nobody claims that monetary policy can do much about productivity growth. Where it can be helpful is in supporting the return to full employment, and there the record has been reasonably good. Indeed, it seems clear that the Fed's aggressive actions are an important reason that job creation in the United States has outstripped that of other industrial countries by a wide margin."

     "The WSJ also argues that, because monetary policy has not been a panacea for our economic troubles, we should stop using it. I agree that monetary policy is no panacea, and as Fed chairman I frequently said so. With short-term interest rates pinned near zero, monetary policy is not as powerful or as predictable as at other times. But the right inference is not that we should stop using monetary policy, but rather that we should bring to bear other policy tools as well. I am waiting for the WSJ to argue for a well-structured program of public infrastructure development, which would support growth in the near term by creating jobs and in the longer term by making our economy more productive. We shouldn't be giving up on monetary policy, which for the past few years has been pretty much the only game in town as far as economic policy goes. Instead, we should be looking for a better balance between monetary and other growth-promoting policies, including fiscal policy."

     http://www.brookings.edu/blogs/ben-bernanke/posts/2015/04/30-wsj-editorial-slow-growth-fed

    Got to love how he zings the WSJ's inflationphobia. Meanwhile Sumner has been preaching to us for years that the Fed is a panacea? I wonder how he'll explain that one? Probably how he explained when Bernanke called for more fiscal stimulus: by arguing that that he Sumner better knows what Bernanke really thinks than Bernanke himself does. 

   Meanwhile, Sumner continues to whine that nobody wants to set up NGDP futures markets. He wants to claim it's some big conspiracy but mostly it's because everyone-except him-knows they won't work.

    P.S. Maybe this is why Scott remains in such ill humor. 

    http://www.themoneyillusion.com/?p=28271&cpage=1#comment-389138

    Failure will do that to you.