That simply has not been the case for a long, long time. Yes, we’ve had large deficits, but inflation has been too low, not too high. Thus, I’m not convinced by the argument that strict Fed independence is always and everywhere needed to discipline the fiscal authorities’ inflationary bias.

Kelton: What about policy today?

McCulley: If President Trump wants to try to boost real growth from 2 percent to 3 percent, there is no reason that the Fed should actively push back. That doesn’t mean that the Fed shouldn’t or wouldn’t respond if such an acceleration in growth were to finally drive unemployment low enough to generate a loud wage and inflationary response.

My point is that there is no reason for the Fed to prevent the “experiment,” if Mr. Trump and the Republican Congress want to run it.

Kelton: So then, what’s your biggest macro concern?

McCulley: My biggest macro concern, longer term, is that we hit the next recession with the inflation rate somewhere near where it is now (about 2 percent). There needs to be room in the inflation rate for it to fall in recessions without turning inflation into deflation. And unless we repeal human nature, the business cycle is not going away.

Kelton: I’m sort of confused. You’re worried that inflation is too low, and you say that the economy still hasn’t reached full employment — two signs that the Fed should hold off on further rate hikes — but you want the Fed to get interest rates up quite a bit more so that it has the ammo to fight the next recession.

McCulley: I do not want the Fed to get rates up for the sake of getting rates up. Rather, I want the Fed, working tacitly with the fiscal authority, i.e., Congress, to get inflation up. If, and only if, the Fed gets inflation up will there be reason to get rates up, in lagged response. The concept of pre-emptive Fed tightening is anathema to me.

Kelton: I see. So you’d like to see Congress help the Fed get the economy running a little hotter by flexing its own policy lever. I remember that you were one of the most forceful voices calling on Congress to use its fiscal (tax and spending) authority to help the Fed out during and after the last recession. You said that the economy “needed some help with larger budget deficits.”