Truck and Barter

Does this have basis in reality:

The Federal Reserve today reacts to a fiscal expansion by raising interest rates and contracting liquidity so as to try to still hit its inflation target.

I say this because Brad DeLong seemingly has a poor memory. The Fed was lowering interest rates into the fiscal expansion of a few years ago and expanding the money supply at the same time. The rising interest rates of the past year and a half had to do with rapid GDP expansion and bubbling inflation. How about this:

These days, except in exceptional circumstances--in a liquidity trap, when interest rates are already so low that the Fed can't or daren't lower them further, or when the fiscal expansion comes as a sudden surprise that the Fed does not have time to immediately offset--fiscal policy has next to no stimulative effect at all because the Federal Reserve takes steps to make sure that it does not. That's the big reason that claims in 1993 that the Clinton tax increases were going to send the economy into recession were wrong.

I'm not really sure what he alluding to here, but a trip down memory lane will bring us back to an inconvenient truth. The Fed raised rates agressively following the Clinton tax hike of 93. Was this on purpose? No, it had nothing to do with tax increases or fiscal expansion. In fact, there wasn't a fiscal expansion during this period yet the Fed still raised rates. The Fed is merely following the same playbook from a decade ago. They lowered interest rates and expanded the money supply during slow GDP growth. Once growth picked up, they raised interest rates and curtailed money growth. It has nothing to do with fiscal expansion.