As the fed's latest cut pushes funds target rates toward zero, I am shocked that the news is not focused on whether the US faces a liquidity trap. Instead, there is very little discussion and markets seem to be neutral on the latest news.
The article I linked here is interesting for two reasons: one, it looks into the basic issues in some depth; two, it is clear that no one really understands what is happening. Note that Bruce Bartlett is arguing that the biggest danger we face now is deflation. Maybe. But two months ago, the biggest danger we faced was inflation: the latest swings in price indices seem more related to runaway boom-bust cycles in energy and commodities - too soon to really know what we face. Time will tell, of course, but only in a backward looking sense. At that point, we'll be passed the point where we needed the information.
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