As we approach another Fed Open Market Committee (FOMC) meeting (November 3rd), it is time to look at the Taylor Rule, created by Stanford economist John Taylor to help everyone understand what The Fed is likely to do. Unfortunately, The Fed doesn’t do what expected.
For example, look at the Taylor Rule using Greg Mankiw’s specification. It says The Fed Funds Target Rate should be 8.52%, not the lowly 0.25% it is today.
That is a big gap between where The Taylor Rule says we should be and where Powell and the FOMC is.
Will The Fed raise their target rate on November 3rd? Or at least start slowing the balance sheet?