What Does Easy Money Look Like?

St Louis Federal Reserve Bank President James Bullard, speaking about monetary policy, says “current policy is already very easy, as the policy rate remains near zero and the balance sheet remains large.”

I think this is a common linguistic confusion, also seen when people characterizing calls for monetary stimulus as calls for Ben Bernanke to “do more.” There isn’t some scalar quantity of action-taking or context-independent sense in which the easiness of monetary policy can be assessed. The proof of the pudding is in the eating. What is happening in the American economy right now? For example, if money is very easy then shouldn’t inflation be running at an unusually high level? In reality, we haven’t even made up the gap caused by the downward deviation associated with the financial panic. And forward-looking inflation expectations are extremely low. Unit labor costs are below peak and well-below their trend level. Real growth has been disappointing, and the economy clearly features idle resources in the form of unemployed workers and vacant commercial real estate. So what’s easy about current policy?

Note that in the 1970s, the policy rate was much higher than it was today. Does that mean the years of big inflation had tighter monetary conditions than today?

Obviously you can define your terms to have the answer come out that way if you want, but it seems pointless and confusion. Easy money is when you have a lot of demand even in the face of supply constraints and thus prices go up quickly. If demand is weak, then money isn’t easy. But even in interest rate terms, it makes no sense to just talk about them in a vacuum. Are rates low? Well low compared to what? They’re not “low” in the sense of being “so low as to trigger a high level of aggregate demand” so they’re not low in any macroeconomically relevant sense.