Economic Commentaries

Entries for October 2018


Fed Chair Powell offered his view of monetary policy at last week's annual Jackson Hole Wyo. conference. He attempted to thread a proverbial needle, arguing against those believing Fed policy risks being too aggressive, while fending off criticism from those believing the Fed is being too tardy, risking a financial bubble and inflation.

With the Chairman highlighting that the Fed's goals of economic growth and price stability are being met, he suggested the best course is for policy to continue toward reaching rate neutrality, without quantifying what may be the neutral rate. The first reaction from financial markets was positive as equities rose, the dollar eased, and bond rates held steady.

Our view is that the Fed is risking being too aggressive if it continues on its present course. The Fed Chairman suggested that evidence in either direction would cause the FOMC to quickly adapt. We think the next few quarters will provide evidence supporting our view. As a precedent we hark back to the mid 1990s. At that time Fed Chairman Greenspan backed away from a diet of raising rates as he detected a surge of productivity flowing from newly emerging technologies. He was right and the economy dazzled.

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