Rules lead to prosperity and discretion leads to trouble...

The Dangers of an Interventionist Fed

by John B. Taylor (George P. Shultz Senior Fellow in Economics; Chair, Working Group on Economic Policy; and member of the Task Force on Energy Policy)

The Fed has returned to its discretionary, unpredictable ways, and the results are not good. 


Starting in 2003-05, it held interest rates too low for too long and thereby encouraged excessive risk-taking and the housing boom. It then overshot the needed increase in interest rates, which worsened the bust. Now, with inflation and the economy picking up, the Fed is again veering into "too low for too long" territory. Policy indicators suggest the need for higher interest rates, while the Fed signals a zero rate through 2014.


http://www.hoover.org/news/daily-report/112531