Fed Framework Is Unsurprisingly Dovish
• The employment mandate has shifted to address shortfalls from full employment, not deviations. In other words, the notion of going “beyond full employment” now appears meaningless for policy
• As was well flagged, the FOMC will target 2% inflation over time. Though they haven’t specified over what time period. I guess that will be fodder for future debates
• They highlight the risks of the zero lower bound restricting the capacity to ease...and thus the likely requirement of using alternative tools.
• They note downside risks to both employment and inflation, which is remarkable for what is supposed to be a policy framework statement
• They throw a bone to financial stability risks, but clearly their pattern of behavior in the past suggests that those are only addressed on the downside. It’s hard to conceive that this will be a binding constraint with unemployment this high
• This framework will be reviewed every 5 years. My guess at the moment is that the FF rate could well be where we are now at the time of the next review
All in, pretty dovish. Granted, that was expected, but the asymmetry of the employment mandate is particularly notable.
• The employment mandate has shifted to address shortfalls from full employment, not deviations. In other words, the notion of going “beyond full employment” now appears meaningless for policy
• As was well flagged, the FOMC will target 2% inflation over time. Though they haven’t specified over what time period. I guess that will be fodder for future debates
• They highlight the risks of the zero lower bound restricting the capacity to ease...and thus the likely requirement of using alternative tools.
• They note downside risks to both employment and inflation, which is remarkable for what is supposed to be a policy framework statement
• They throw a bone to financial stability risks, but clearly their pattern of behavior in the past suggests that those are only addressed on the downside. It’s hard to conceive that this will be a binding constraint with unemployment this high
• This framework will be reviewed every 5 years. My guess at the moment is that the FF rate could well be where we are now at the time of the next review
All in, pretty dovish. Granted, that was expected, but the asymmetry of the employment mandate is particularly notable.