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Business / Finance / Markets / Money

Trump: “I think the Fed has gone crazy”

Trump: “I think the Fed has gone crazy”

Implicitly, Trump is saying John Taylor is crazy, since the original Taylor rule would imply even faster rises in the Fed funds rate (I am inferring from Professor Taylor’s discussion of neutral rates. Below I plot the implied Fed funds rate, assuming no interest rate smoothing, the Laubach-Williams one-sided estimate of the real natural rate, and a target variable of 4 quarter PCE inflation.


Figure 1: Implied Fed funds rate, using CBO output gap, Laubach-Williams one-sided estimate of real natural rate, PCE 4 quarter inflation, and no interest rate smoothing. Source: Atlanta Fed.

Assuming a higher natural real rate (2%) would — obviously — imply we are currently far below Taylor rule implied levels.

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