Rethinking the Fed’s policy framework

The dovish turn in March 2019 is unprecedented and inconsistent with the Fed’s remit. The Fed, mandated by US Congress, has three objectives: achieve maximum employment, maintain price stability and ensure moderate long-term interest rates. Currently, the unemployment rate is about half a percent below its long-run normal level, implying the economy is operating above potential. Consumer price inflation (1.4%y on PCE deflator) is below the 2% goal due to energy prices. If anything, service price inflation runs ahead of the desired level of 2%. Long-term rates are moderate with 30-year Treasury yields well within 3%.

Global uncertainties have arguably led to a soft patch in growth, yet with US imports and exports averaging no more than 15% of US GDP, the impact on the economy is limited. The current foreign demand shortfall is unlikely to tip the US into recession considering the strength in private domestic demand.

Download the complete white paper at the link beneath Related Files

Supporting documents

Click link to download and view these files