Sonal Desai says the Fed has kept monetary policy too loose for too long

  • 📰 TheEconomist
  • ⏱ Reading Time:
  • 47 sec. here
  • 2 min. at publisher
  • 📊 Qulity Score:
  • News: 22%
  • Publisher: 92%

The central bank’s plan to tackle inflation rests on two “shaky assumptions”, reckons the chief investment officer of FTI_US. In a guest essay, she explains why

United Kingdom Headlines News

United Kingdom Latest News, United Kingdom Headlines

highs poses the toughest of policy challenges. Yet America’s Federal Reserve still hopes to meet it with an easy solution: bring the policy rate close to 3%, and as adverse supply shocks fade inflation will revert to the Fed’s 2% target. No need for a sharp monetary tightening à la Paul Volcker. No need to risk a recession or to trigger a significant rise in unemployment.

Yet this assumption might be well off the mark. Economists Thomas Laubach and John C. Williams have estimated that the real neutral rate of interest averaged around 2.5% during the 1990s and 2000s, before dropping to a 0-1% range after the financial crisis of 2007-09. A drop in America’s productivity growth and higher demand for safe financial assets may explain the decline. Productivity growth, however, has rebounded and averaged 2.4% during 2019-21—the same as the average of 1991-2007.

The second of the Fed’s shaky assumptions is that inflation expectations are still well anchored and that there is no sign of a wage-price spiral. In this telling price growth reverts to a “healthy” pace once exogenous shocks have dissipated. But much evidence already points in the opposite direction. Although wages have not kept up with surging inflation, they are growing at the fastest pace in 40 years, about 4-5%.

We have summarized this news so that you can read it quickly. If you are interested in the news, you can read the full text here. Read more:

 /  🏆 6. in UK
 

Thank you for your comment. Your comment will be published after being reviewed.
Please try again later.

'The Fed has kept monetary policy too loose for too long' (?) Yes, since 2008. No seriously, monetarism is a joke, beside capitalism

Sonal Desai should stop making cockamamie statements.

They lost ALL credibility when they let Trump walk all over them. They also have some splainin' to do about repos.

Has leadership considered decreasing our debt by taking a hard look at what expenses get us closer to our goals and which ones make someone feel they r doing something?

Can y'all change your name to 'political rag written by dipshits with 80 iq' or something? You act surprised when the Fed pretends the Taylor rule isn't a thing, keeps interest rates below what they should be in years 8-10 after the last bubble,then have the gall to act surprised

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Fed officials raised possibility of ‘restrictive’ policy to fight inflation\n\t\t\tKeep abreast of significant corporate, financial and political developments around the world.\n\t\t\tStay informed and spot emerging risks and opportunities with independent global reporting, expert\n\t\t\tcommentary and analysis you can trust.\n\t\t Enduring stingflation stimalus ‘possibility’ of restrictive policy Inflation is at 8+ percent , and the grand strategy is to reach 2,5 to 3 percent interest rate to bring down inflation . Seriously ?
Source: FT - 🏆 113. / 51 Read more »

Leaked photos from Xinjiang include mugshots of Uyghurs detained for expressing faithDocuments show records of arbitrary detention for as long as a decade for trivial acts, as well as shoot-to-kill policy for those who try to escape Very bad situation dear friend It is time UNHCR to do something without announcing to the public. Who knows what will be covered up in their visit. The genocides have been going on for quite a while now.
Source: The Independent - 🏆 57. / 63 Read more »

Victorian Greens welcome ‘teal’ independents running in state election after historic federal resultSamantha Ratnam says prospect of having more MPs advocating for strong action on climate change is ‘exciting’ I saw several people testifying of making so much money with the help of Richard__Gowen on Bitcoin option trade and I decided to give a try and now I'm glad now he helped me and my colleagues to make £7,580 in 5days trader, thank you for transparency and trust.
Source: Guardian news - 🏆 28. / 68 Read more »

Queensland laws mandating last drinks at 3am helped halve early morning assaults, report findsPolicies passed after Cole Miller’s death from one-punch attack have also not adversely affected hospitality venues, review says
Source: Guardian news - 🏆 28. / 68 Read more »

Some Facebook Users Are Receiving $397 Checks Over Data Privacy Violations—and These Tech Companies Could Be NextEarlier this month, more than 1.4 million long- and short-term residents of Illinois started receiving checks for up to $397, and experts say more checks from privacy lawsuits are likely on the horizon.
Source: NECN - 🏆 20. / 71 Read more »

The Flip Is Summer’s Sweetest Hair Styling Trick“Flicky and flippy ends are having a real resurgence,” explains hairstylist Larry King.
Source: BritishVogue - 🏆 14. / 80 Read more »