The Federal Reserve just can’t catch a break.
Back in 2001, the Fed caught hell for allowing the dot-com bubble to escalate so steeply. For the following two years, it found itself between inflation hawks who worried about historic low interest rates and deflation hawks who thought high unemployment was a harbinger of Japan-style depression.
After giving the Fed a breather for a few years, observers jumped on them in 2007 for ignoring warnings about predatory lending, in March 2008 for fostering moral hazard with the Bear Stearns deal, in September 2008 for crashing the economy by letting Lehman Brothers fail, and in the rest of 2008 for lowering interest rates too slowly before and during the crisis. In 2009, they were sandwiched between economists who wanted more aggressive, “unconventional” monetary policy and those who cautioned against loading up the Fed’s balance sheet with dangerous assets. Continue reading “Between a Rock and a Hard Place, But It Didn’t Have to Be This Way”