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Commentary

 
 
Posts tagged Fed
The FOMC is coming

Having dropped to 5.1%, the unemployment rate has reached the longer-run employment goal of the Federal Reserve’s Open Market Committee (FOMC). So, starting to raise interest rates would seem to be in the cards. And, many observers expect policymakers to act soon, possibly very soon.

The key sticking point, and it is a big one, is that inflation – as measured by the personal consumption expenditure price index (PCE) favored by the FOMC – has been consistently below their stated 2% medium-term objective since early 2012.

Tightening monetary policy for the first time since 2006 requires confidence that inflation will in fact head back up (see, for example, the July FOMC statement and Fed Vice Chair Fischer’s recent comments). The difficulty is that confidence requires reliable forecasts. And, as it turns out, precise forecasts of inflation are hard to come by....

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Steve Cecchetti and Kim SchoenholtzFed, Monetary policy, FOMC, Inflation, Inflation forecast, Inflation targeting, Policy inertia
ECB and Fed: Separated at Birth?

Nearly 30 years ago, the satirical Spy magazine began posing the now-familiar question – “separated at birth?” – above lookalike images of two unconnected public figures. Donald Trump was paired with Elvis Presley, Marie Osmond with Monica Lewinsky, and the list goes on (and on). Had Spy found humor in juxtaposing institutions rather than personalities, it still wouldn’t have landed on the Fed and the ECB (which didn’t yet exist): their buildings look nothing alike...

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Steve Cecchetti and Kim SchoenholtzECB, Fed, Governing Council, FOMC, Central banks, Communications, Governance
Central Bank Money Without Inflation?

Except for places like Argentina, Venezuela and Sudan, inflation is remarkably low. In fact, virtually no advanced economy in the world has inflation that is even 5%. In the euro area, the harmonized index of consumer prices is rising at roughly 0.7%. And, in the United States, the consumer price index rose by 1.1% over the past 12 months.

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Steve Cecchetti and Kim SchoenholtzInflation, ECB, Fed, Reserves