Ex-Fed economist Bill Nelson on Federal Reserve strategy
WASHINGTON (AP) — Bill Nelson has experienced the workings of the Federal Reserve from both sides of the street.
Nelson is the chief economist of the Bank Policy Institute, a trade group for U.S. banks. Earlier in his career, he served as an economist at the Federal Reserve and rose to become deputy director of the Division of Monetary Affairs, which provides guidance for the Fed's interest rate decisions.
Like many economists, Nelson says the Fed took too long this year to start raising rates. He favors a more forward-looking strategy from the Fed, which has recently made several sharp policy shifts in response to the latest economic data. The Associated Press spoke recently with Nelson.
Q: Fed officials, including Chair Jerome Powell, have acknowledged that with hindsight, they could have started raising rates earlier than they did. What do you think of their policy now?
A: They’re on the right track. Not 100% sure they’re following the right strategy, but I think the path they are on is a good one.
Q: Where do you disagree?
A: Part of the problem that left them where they are was initially a desire to focus on realized inflation rather than the outlook for inflation. It’s understandable, given that the outlook was very difficult to predict. But monetary policy needs to be a forward-looking exercise, based on forecasts. It can’t be based on looking out the window. Even though they have now adjusted to a rapid pace of tightening, they still seem to be responding to what they’re seeing outside the window rather than looking ahead. You could make a mistake — in either direction — by looking at current inflation. Inflation could remain high even though spending is weakening. And in light of that, you don’t want to keep raising rates if you’re already slowing growth....