Inflation And The Phillips Curve
I was surprised to see this title at all, since the Phillips Curve was largely disproven by 70’s stagflation. I wonder if this is still the only reason for manipulating interest rates, therefore. Obviously this fact hasn’t been missed by ALL the economists on the Fed.
It seems to me that in more modern thinking, the purpose of manipulating the base interest rate is to prevent overspeculation in risky asset markets leading to a bubble. Higher interest rates work counter to corporate earnings, according to one of Mr. Buffett’s key metrics. Low interest rates therefore create conditions which support asset bubbles, while higher interest rates do the reverse.