Based on its assumptions, the Federal Reserve is doing everything right by raising interest rates rapidly after years of easy money. It will certainly succeed in its goal of “cooling down” the economy.
Unfortunately, the Fed’s basic assumptions are wrong, and it has already begun reducing Americans’ standard of living, as indicated by this week’s Commerce Department report showing the nation’s gross domestic product fell for the second quarter in a row, meeting the common definition of a recession.
The Fed’s actions are based on two major ideas: one, the congressional directives to stabilize prices while maximizing employment, and two, the Fed’s ongoing ambition to fine-tune the economy, which flows from the first notion.
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