"We need to change how we think about monetary policy, however, or else we're setting ourselves up to get repeatedly fooled. Adjusting interest rate targets is a means to an end. The interest rate is not the price of money, but rather the price of time. When you borrow, you're renting capital. Interest rates reflect the value we place on having capital right now, as opposed to later."
"The Fed doesn't set interest rates. As powerful as America's central bank is, it's still just one player in a globe-spanning ocean of financial markets. Instead, the Fed sets targets for short-term interest rates. Those target rates indicate the Fed's general monetary policy stance, but they are not the substance of monetary policy. The Fed no more "determines" interest rates than a meteorologist determines the weather."
Fed Chair Jerome Powell cautioned that lower interest rates might not come in December while some Board members, including Stephen Miran, advocate for cuts, leaving the Fed's path unclear. Markets prefer predictable rates, but the Fed's official mandate emphasizes full employment, price stability, and moderate interest rates, which in practice centers on labor markets and price levels. Monetary policy requires rethinking: interest rates are the price of time, not money, and reflect the value of having capital now versus later. Rates should adjust to supply and demand in investment markets, and the Fed sets short-term targets without fully determining broader market rates.
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