Currently, the Fed is currently focused on keeping our economic growth going but removing the highly accommodative monetary policy that gave us the lowest interest rates in 40 years. They aren’t stepping on the brakes so much as they are just taking their foot off the gas. Once that goal is accomplished, the Fed will probably stop raising rates and allow the economy to just roll along until it sees a pattern of it slowing or speeding up and then it will adjust accordingly. The last series of interest rate hikes weren’t intended to slow the economy so much as just removing the excess and return it to a more neutral environment. But if they see the economy start to take off, they won’t have any problem at all continuing to raise rates to slow it.
“Starve the beast”
The “starve the beast” theory isn’t really about access to funds. The government owns the printing press. They have unlimited access to funds. (although not at the current price 😉
They have a debt ceiling too, but every time they get near it, they raise it. It’s all politics, not economics. It’s a selling point for tax cuts without reduced spending.
What would be a good idea is going back to the Paygo system that we had from 1990 to 2002. That balanced our budget, started to pay off our debt, gave us fiscal discipline and created a responsible system.
Oh where oh where did my little Paygo go? :-))
Strict inflation targets
Some central banks, such as those in Canada, Britain, Sweden, Australia, and New Zealand, operate monetary policy by setting strict inflation targets. The thinking is that it is very difficult to hit monetary growth targets and, even then, to know how changes in the money supply will impact the economy. So central banks should continually adjust monetary growth to hit a desired inflation rate. There is some good logic to this trial-and-error approach, given the imprecision of monetary policy in practice.
Dr. Douglas Rice 