I will be upfront about it: to me, the Taylor rule is still a helpful tool to assess the future monetary policy of the US central bank. However, it should not be used as blueprint without thinking it through. Instead, it should be seen as heuristic tool that helps structure one’s analysis.
Since 2008, the key-lending rates in the USA seem to have been significantly too low as measured by the Taylor rule. With some economists blaming Alan Greenspan’s loose monetary policy as partially responsible for the financial crisis of 2008, the question is whether we are in for a déjà-vu.
The US central bank has embarked on a cycle of interest rate hikes. The question is: by how much will the interest rates increase still, and at what point will it reach a level detrimental to the economy, where equities should be regrouped into asset classes less sensitive to the economic cycle?
We have seen a number of trend reversals this year, one of them being the end of the negative growth surprises. The forecast of economic growth and inflation are currently not subject to downwards revisions any longer.
