Stephen Williamson and Current Fed Behavior
Professor Williamson, VP of the St Louis Fed said this in a comment to his blog article, to a fellow who said NeoFisherism won't work, but may result in less consumer spending and just a bidding up of assets: Your comment illustrates the problem with what David is looking for, which is some "intuition" that will somehow convince people who are not on board with the idea. Any "intuition" that people have comes from thinking about some model that is familiar to them. In some cases, that seems to be some undergraduate IS/LM/Phillips curve model with fixed inflation expectations. In that type of model, tighter monetary policy makes the interest rate go up, spending goes down and, via a Phillips curve effect, inflation goes down. If that's your "intuition," then nothing will convince you that higher nominal interest rates make inflation go up. Checking our ideas for internal consistency involves constructing rigorous models, and trying