The Charging Rhino theory from Arnold Kling:
the Fed is just very slow to change direction. One story for the 1970s is that the Fed kept under-estimating the shifts in the Phillips Curve and the increases in the natural rate of unemployment. It kept following inflationary policies because it was slow to adapt to reality. Similarly, it appears now that the Fed is slow to adapt to downward shifts in aggregate demand. It is adjusting gradually while conditions are deteriorating rapidly. In the 1970s, the Fed took too long to tighten, and now it is taking too long to loosen.
Scott Summers counters with the Whig theory of the Fed:
I used to have a sort of Whig view of the history of the Fed. They did all sorts of really stupid things in the Great Depression and the Great Inflation, and then they finally found the right policy. This led to low and stable inflation. The last few years, and especially the last few days, have disabused me of that view.
Let me suggest a more psychological view, which you might think of as the smartest kid in the class theory. Fed governors and especially the Fed’s chairman got where they are by giving the expected answer. They gave the expected answers in grade school, high school, college, and graduate school. They gave the expected answers when interviewed by the president and when interrogated by the Senate. There are no mavericks there.
They will continue to do the expected thing until it is absolutely, positively certain that the expected answer doesn’t work any more and, consequently, the expected answer has changed. Then they’ll do that.
It’s beginning to sound like the blind men and the elephant.