Back to monetary policy basics with the Taylor Rule

 

Let's go back to basics from an earlier time. The Taylor Rule. The Taylor Rule still is a useful framework for looking at where monetary policy may be going. First, the rule would have raised rates higher and earlier than the Fed. Second, the Fed would already be cutting rates and bringing them below the current level.

The Taylor Rule suggests that the Fed was late to raising and is late to cutting. The Taylor rule has issue, but it provides a point for discussion. Fed monetary policy through bad timing has contributed to global economic instability.