CROSSCHECK NGDP

“One potential area where these models can be helpful is, as a social scientist, there are important elements of group and committee dynamics that are for the most part completely left out of textbook models. If you really want to understand monetary policy, you've got to understand the social science and, if you will, anthropology of committee dynamics. It's not like you have a new FOMC each meeting.”

“The fiscal news is terrible, but markets have digested it and repriced and reset higher yields, and I attribute most of that to higher-term premium that bond markets require to hold sovereign bonds. The bottom line is the fiscal news is bad, but investors are being compensated for it. If you combine 6% of GDP budget deficits with a loss of central bank credibility, then you get into a much more challenging situation.”

“The story in the US in 2025, to some extent, was tariffs pushing up the price of goods. And that was offset by a decline in services inflation. And then, of course, in 2026, we have a sharp increase in global energy, oil and natural gas prices due to the hostilities in the Middle East and the closure of the Strait of Hormuz. So certainly that is a non-monetary policy shock this year.”

“We could be in an era in which shocks to supply are going to be as big a part as shocks to demand in terms of global business cycle volatility. The reality, and I think where this is relevant to national bankers, is that their jobs are much easier when the shocks are to demand. The fact that your job is easier if shocks are to aggregate demand, doesn't mean that you can't or shouldn't do your job when the shocks are to supply.”

“At minimum, if I were back in my old job, I would spend more time than certainly I did looking, as the Fed does at different projections, and looking at the implications of policy path for nominal GDP growth. There's already evidence there in that miss that there was a supply constraint. There was certainly no shortage of demand in 2021, and that would have been a period in retrospect in which cross-checking with the nominal GDP would have been quite helpful.”

“I would be in favor of a Fed balance sheet, however large it was, that was largely invested at the very front end of the Treasury curve. If you go back and look at the data before 2008, half of the Fed's portfolio, I think, was in bills and 70 or 80 percent was in only out to the five-year point. Away from the zero bound and away from really extreme downturns, that would be my preference.”