John Taylor, former undersecretary of the Treasury under Bush, gave a speech which said the Fed must raise rates and reduce the money supply to avoid inflation.

What is most amusing if it was not so serious is Taylor turned our favorite phrase systemic risk onto the Federal Reserve's actions.

Indeed, a recent Wall Street Journal op-ed, again lays blame at the Federal Reserve (let's not name names but it begins with a Green and ends with Span).

Taylor disagreed with economists who say his “Taylor rule” would suggest the need for stimulus and justify cuts in the federal funds rate to sharply negative territory. The rule might suggest the need by the end of 2009 of a funds rate of minus 7.5 percent, Laurence Meyer, vice chairman of Macroeconomic Advisers, said in a note to clients in March.

The Fed helped to trigger the current financial crisis by keeping rates too low for too long, Taylor said in today’s speech.

“Low interest rates led to the acceleration of the housing boom,” he said. “The boom then resulted in the bust.”

Taylor also said proposals for a systemic risk regulator may be misguided. Such a regulator wouldn’t have prevented the financial crisis, he said.

“If it were given its own regulatory powers, they would be very difficult to limit,” he said. “The experience during the panic last fall is not reassuring that such an agency could resolve private institutions without causing more systemic risks than it was trying to reduce.”

Taylor has a lot of information publicly available, with a youtube channel and a website for further reading.