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.
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