February 28, 2024

A pair of hands works on a Harley Davidson clutch.

Crank that.
Photo: David Paul Morris/Bloomberg via Getty Images (Getty Images)

For just the third time since 1995, more than a fifth of economists surveyed by the National Association of Business Economics (pdf) think that US monetary policy is “too restrictive.” The portion of respondents sits at 21%, the largest it has been since 2010. That means that 1 in 5 economists polled think the Fed should go ahead and cut interest rates, easing up on its determination to sandbag the economy until inflation comes down.

It’s not that many of them think inflation is going to quickly sink beneath the Fed’s 2% target — a majority of them don’t even think it will go below 2.5% through the end of the year. But there’s a growing anxiety that the Fed will hold rates too high for too long and finally manage to wreck the economy through an overly narrow focus on prices.

Started at the bottom now we’re here

One ironic twist is that, in 2010, the Federal Reserve had already dunked interest rates to near-zero in the wake of the financial crisis. At that point, the Fed could only have sent them negative like the central banks in Europe. But the specter of charging banks to park their excess funds with the government — who could then have started charging struggling customers to deposit their cash — proved too much. Instead, the US central bank reopened its so-called “quantitative easing” program, hoovering up Treasury debt and other bonds in order to stimulate the economy.

These days corporate America is looking at the opposite problem: Interest rates are at two-decade highs, and the Fed is trying to slow down economic growth instead of speed it up. The central bank seems to view most of the risk being on the upside, so Jerome Powell & co. have been more than happy to stand pat as the economy rumbles on relatively undisturbed by their interference.

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