Our Market Optics chartbook contains data-driven insights that power our portfolio management teams’ views, ideas, and decisions. Each week, we’ll take a look a closer look at one of the charts.
This week’s topic: Global economy: Monetary policy.
- This time of year, central bankers typically converge on Jackson Hole, Wyoming, to attend the Kansas City Fed’s Economic Policy Symposium. This year, like most things, the event will be online. Federal Reserve Chair Jay Powell is scheduled to speak Thursday. A lot of people are curious what he will say as the Federal Reserve (Fed) has been doing a policy review and the theme of this year’s symposium is about monetary policy for the decade ahead. So, it would be a good time to signal whether the monetary policy framework of the past 10 years will be appropriate for the next 10.
- Some preliminary papers have said the Fed should pursue average inflation targeting. Interestingly, the Fed already does that. Its 2% inflation target is—according to the “State of Longer-Run Goals and Monetary Policy Strategy,” adopted January 24, 2012, and updated every January—“as measured by the annual change in the price index for personal consumption expenditures … The Committee would be concerned if inflation were running persistently above or below this objective.” In other words, the 2% inflation target is already an average inflation target. It is also a “symmetric goal.” Any announcement about average inflation targeting will really just be a reaffirmation of what they’re already doing.
- Policymakers in the U.S., U.K., and Australia have all come out saying negative policy rates are probably not appropriate for their respective countries. This likely has to do with the structure and functioning of financial markets. It also has to do with the effectiveness of the policy. Rather than go negative, policymakers likely reckon they can just buy more assets of longer maturity or of a different type to help provide monetary accommodation. If Japan is any guide, there’s quite a bit more capacity on the Fed’s and European Central Bank’s balance sheets to do asset purchases if necessary.
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