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THE GSE REPORT JJAN.U- AFERBY. 22001188
...In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price in ation to 2 percent on a sustained basis. While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, scal policy has become more stimulative and foreign demand for U.S. exports is on a rmer trajectory. Despite the recent volatility, nancial conditions remain accommodative. At the same time, in ation remains below our 2 percent longer-run objective. In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data.
Jerome H. Powell
Chairman of the Federal Reserve System
Testimony before the House Financial Services Committee February 27, 2018
Major central banks’ xation on in ation betrays a guilty conscience for serially falling short of their targets. It also raises the risk that in ghting the last war, they will be poorly prepared for the next – the battle against too-high in ation. ...Fed of cials are aware of the role of resource slack in driving in ation, with the January minutes noting that “estimates of the strength of those effects had diminished noticeably in recent years.”
The discussion, however, would have been more reassuring if it had included the rest of the world, in part because doing so will continue to pose a critical challenge for policymakers. A more trade-reliant economy is more sensitive to uctuations in the foreign exchange value of its currency. True, much of global trade is invoiced in dollars, but the Chinese renminbi is muscling into that turf, and producers ultimately care about how their revenues translate into domestic purchasing power. The upside risk to US in ation stems from that translation—the value of the dollar.
The legislative one-two punch of tax reform and spending increases puts the US federal debt on an upward path. If scal laxity tarnishes the safe-haven status of Treasury securities, and the monetary authority is perceived to be slow in removing policy accommodation, Fed Chair Jerome Powell and his colleagues may get more of the in ation they are hoping for.
Carmen M. Reinhart and Vincent Reinhart
Project Syndicate
February 28, 2018
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