Stardate 20011229.1535

(On Screen): In 1999 and early 2000, the board of governors at the Fed looked askance at the American economy. It just seemed too good to be true: the market was high, growth was huge, unemployment was at historic lows, and there didn't seem to be any significant inflation. Obviously there was something wrong; so over the course of a year and a half, the Fed tried to slow the economy by raising interest rates. Over and over and over, and it didn't seem to work.

The Fed forgot that there's a very long latency involved;  by  most theories it takes 12-18 months for the effect of interest rate changes to kick in. And by the time they did, the Fed had raised interest rates so far that the slow down became a crash, leading to the first recession in ten years. In the last year, the Fed has embarked on the most radical episode of interest rate cuts in its history.

And I think they went too far in the opposite direction, and again for the same reason. This article says that a recovery may be about to start. That would be a fine thing. But I'm afraid now that the results of 3 full points of drop in interest rates will be too much.

I think that a lot of the problem is that the Fed has taken on more responsibility than it is capable of handling. It isn't really capable of running the throttle on the economy to keep it at a steady state. It can, however, keep the value of our money stable, and that should be enough.