The central bank has backed off the interest-rate hikes it had been delivering to avoid a potentially dangerous rise in inflation that economic theory says could result from the hot jobs market. Instead, Powell & Co. have put policy on hold until sub-par inflation rises convincingly.
“The Fed is evolving to a ‘whites-of-the-eyes’ approach in terms of inflation’’ under which it won’t hike rates until price rises accelerate, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.
Chicago Fed President Charles Evans said this week that the central bank may hold policy steady until the fall of 2020 and might even reduce rates in the unlikely event that underlying inflation softened.
Such a stance could eventually lead to faster price rises, lower unemployment and a longer expansion as officials refrain from raising rates to rein in the economy.
Then-Fed Chair Janet Yellen rejected a “whites of their eyes’’ strategy in 2016, arguing that the central bank needed to be pre-emptive in dealing with inflation because monetary policy acts with a lag. Powell, a central bank governor at the time, supported her.
That’s the impetus behind the Fed’s decision to reconsider its inflation framework. While Powell has ruled out increasing the 2 percent goal, he’s raised the possibility that the central bank could adopt a “make-up’’ strategy when it concludes its review in the first half of 2020.
Submitted April 17, 2019 at 05:24AM by COMPUTER1313 http://bit.ly/2KLHpbx
