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May 04, 2005

What Should the Fed Have Done Differently? Be Doing Differently?

Brad Setser muses:

Brad Setser's Web Log: Specializing in the production of houses: The big policy question, of course, is what, if anything, the Fed should do (or should have done) to try to limit the risk that the US is becoming too specialized in the production of houses. After all, the easiest way to reduce the incentive to produce houses would be to raise interest rates. By taking away the incentive to borrow against rising home prices to support current consumption, the Fed could bring US demand growth back in line with US income growth (See this FT oped by former Fed international staff director/ Treasury Ast. Secretary Ted Truman). But in the process, the Fed also might put a damper on employment growth.

Posted by DeLong at May 4, 2005 06:36 PM