Fed Policy

Critical to the Fed successfully achieving maximum employment over the short run and the longer run is a commitment to, and a communication of, “maximum employment” that is Credible, Broad, and Inclusive.

If the Fed wants to stay true to the "maximum employment" component of its forward guidance, and the "broad and inclusive" nature of that goal, it is imperative that their interest rate policy actions reflect a full recovery on both of these measures.

The policy mistake worth worrying about isn’t the speed of taper per se; it's the signal that taper sends about the timing of liftoff in interest rate policy.

Despite widespread use by commentators and policymakers, the models commonly used to argue for the importance of "inflation expectations" are difficult to confirm empirically, and risk a hawkish policy bias.

Whenever inflation becomes a part of political or economic discourse, policymakers and commentators instinctively reach for narratives and models drawn from the experience of the 1970s inflation. However, these models offer little explanation for even adjacent experiences of inflation.

Given the Fed’s recent framework revisions and forward guidance commitment to maintain current interest rates until “maximum employment” is achieved, the Fed’s communication with respect to its assessment of “maximum employment” is overdue for a clarification.

The Framework Review and Forward Guidance center labor market outcomes over inflation in evaluating interest rate policy. However, the Fed haven't clarified how they will evaluate inflationary dynamics under the new regime.

Given Mnuchin’s stated intent to act in violation of the CARES Act, Chair Powell should reconsider his decision to transfer the funds back to Treasury, or at least clarify that they are for the sole purpose of being returned to the Exchange Stabilization Fund.

While The Shock may have ended, labor market indicators suggest that we still need to respond appropriately to The Slog if we are to avoid a repeat of the lackluster “jobless recovery” following the 2008 crisis.