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The Federal Reserve is currently performing one of its now regulated assessments of its monetary policy strategy. The first was finally Very controversialSo the outcome can be interesting.
The US Central Bank announced Last fall that this research would concentrate in two specific areas: the board ‘Explanation of longer goals and a monetary policy strategy” – That outlines the broad approach of the FED – and are communication tools.
The result of the assessment is supposed to be unveiled “against the late summer”, but we have some instructions in the Composition of a conference The Fed organized last month, where Jay Powell descended Different hints In his opening comments.
Goldman Sachs Chief Economist Jan Hatzius and his team have now published their own thoughts About what could happen. They expect that when it comes to the long -term statement, the most important change will probably be a water of the “flexible average inflation targeting” policy that will be unveiled at the end of 2020:
– The last framework review in 2020 was strongly influenced by a long period of low inflation and concern that a very low neutral speed would make the zero lower limit (ZLB) a more frequent problem in the future. Twee van de belangrijkste ideeën die eruit kwamen, waren dat het monetaire beleid zou moeten reageren op “tekorten” van maximale werkgelegenheid, maar niet op de arbeidsmarktkoepheid die niet begeleid is door tekenen van inflatoire druk, en “flexibele gemiddelde inflatie -targeting” (FAIT), waaronder de FOMC de inflatie zou toestaan ​​​​om te schieten 2% na verlengde perioden van lage perioden van gemiddeld 2% in de loop From the time and average inflation over time and low inflation.
– Some critics have argued that these ideas have contributed to high inflation during the pandemic by postponing the response of the FED. Chairman Powell and Senior Fed economists do not agree with this judgment, but the FOMC will probably adjust its consensus statement. It will probably return to say that it will respond to “deviations” in both directions of maximum employment in normal times or at least water in the shortage language. It will probably also return to flexible inflation argeting (instead of flexible average inflation targeting) as its most important strategy, although it probably retains the option to use a composition strategy in some cases when the economy is at the ZLB. The FOMC could also promise to respond vigorously to abnormalities of inflation in both directions, in accordance with the recent strategy update of the ECB. Neither change probably has an immediate impact on monetary policy.
Here Alphaville wants, although the timing of Fait turned out to be unhappy, the reasoning behind the allowance of inflation is a bit hot if it is and remains a longer period under the target, even if that opinion is a bit. . .
. . . nowadays.
It happened to be implemented in the middle of an extraordinary global economic shock (COVID-19) that had an unpredictable, versatile effect on inflation. That complex inflation – shock was then exacerbated by Russia who invaded Ukraine in 2022 and resulting sanctions against Moscow, which helped with the higher of food and energy prices. And as Isabella Weber et Alt Alto have shown, energy shocks are “systemically significant” drivers of overall inflation.
As a Powell itself noted Last month:
The idea of ​​a deliberate, moderate exceedance turned out not to be relevant to our policy discussions and remained that way today. There was nothing intentional or moderate about inflation that announced our changes to the consensus statement a few months after we announced.
AnyhoooHatzius thinks that Tweaks can be a bit more meaningful about the communications strategy of the Fed than the informal burial of Fait in the monetary policy strategy of the Central Bank.
He emphasizes two specific proposals that may be important for markets if they are implemented later this year:
– The first proposal is to offer alternative economic scenarios to emphasize risks to the prospects. Some other central banks do this, but most do not show corresponding monetary policy paths that would help investors better understand the current reaction function of the central bank. The FED staff already offers detailed alternative scenario forecasts in the Tealbooks, but they are currently only released to the public with a five-year delay. We believe that these scenarios have given the context for how the reaction function – at least the implicit reaction function of the staff – has changed in the past in various economic conditions. This context could be informative for investors, if provided in real time, especially if FOMC participants started to provide alternative interest projections that corresponded to the alternative economic scenarios of the staff. That said, the FOMC or the staff can be reluctant to publish scenarios that are politically sensitive or who draw attention to very negative economic results.
– The second proposal is to link the projections of FOMC participants for the economy and interest rates while keeping them anonymous. This would enable investors to see how each participant believes that the fund rate rate should be determined under his economic prediction, instead of trying to deduce a response function from committee-wide median economic and interest projections that often come from different people. We believe that this information would probably be useful for investors – knowing the reaction function of the median participant who was completed from their linked projections would have contributed to predicting monetary policy relders in the past.
Goldman has made the full report available for FT Alphaville readers who may want more than just our fast synopsis, And you can find it here.
