Next steps for Fed policy
In this speech, Fed Governor Christopher J. Waller highlights the choices the FOMC faces during the June meeting:
- Based solely on economic data to date which show slow progress on inflation, one could advocate for another 25-basis-point hike as the appropriate action in June.
- If there is a probability of an abrupt and unexpected tightening of credit conditions that could push the economy down in a rapid and undesirable manner, then it would be prudent for the FOMC to skip a hike at the June meeting but lean toward hiking in July based on the incoming inflation data.
- “Between policy lags and possible tightening credit conditions, the current stance of monetary policy may be seen, at that point, as sufficiently restrictive to move us toward the dual mandate. From this viewpoint, the policy rate is high enough and we simply need to hold it there to bring inflation down toward our 2 percent target.”
Hike, Skip, or Pause?
By: Christopher J. Waller – Federal Reserve Board
Policymakers’ objectives
In this paper, Narayana Kocherlakota argues that policymakers’ projections typically imply that their objective functions have an additional non-quadratic loss term that assigns extra costs (benefits) from overshooting (undershooting) their long-run inflation and unemployment targets in the medium-run.
He argues that in terms of inflation, this additional term captures a two-stage risk: In the first stage, above-target inflation could lead “inflation to become unmoored” or “inflation to become entrenched.” In the second stage, central bankers are concerned about the follow-up need to bring down inflation expectations through a harsh Volckerian recession.
In terms of low unemployment, the Fed values the potentially large gains from a “hot” labor market for demographic groups (such as Black people) who face barriers to employment.
Asymmetries in Federal Reserve Objectives
Author: Narayana R. Kocherlakota
From: University of Rochester
