Jay Powell must explain what patience means


Federal Reserve Update

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Tomorrow’s Jackson Hole Symposium is the most important event in the Central Bank’s community calendar this year. Whenever the governors of the world’s central banks meet in the Wyoming Mountains—or, now, E-meeting ——They often take this opportunity to explain important developments in their thinking and practice of monetary policy. Jackson Hole speeches by policymakers—especially keynote speeches by the Chairman of the Federal Reserve—are an important source of insight into what will happen next in the economy and policy. This year’s seminar coincides with a particularly suitable time to provide this insight.

There is no doubt that we are in an unprecedented economic situation, especially in the United States. Monetary policy has never been so loose. Fiscal policy may never have been more stimulating, at least outside of war. We have never consciously locked down an entire economy to fight a pandemic before, so we have never experienced a recovery from it.All of this is based on long-term changes in the economy Force deep reflection How to formulate economic policies even before the pandemic. Compared with usual, the economy is more difficult to predict and policies are more difficult to plan.

In particular, there are deep theoretical and empirical differences on the benefits and risks of “overheating the economy” (Neil Owen of the New York Times) Start a debate very good). The cause and consequence of this debate is that we simply don’t know whether the economy is more likely to respond to today’s unprecedented stimulus of aggregate demand with growth or inflation.

In addition to this potential uncertainty, there will also be short-term volatile signals about whether the US economic recovery can combat the rising Delta Coronavirus infection, and what actions the members of the Federal Reserve Policy Committee think should be taken.

Nonetheless, we still need to make choices based on what we think will happen-“we” include investors, companies and workers who are at risk in the market to do our best to guess the demand for their products and labor in the next few years, and The Fed itself. Its chairman Jay Powell’s task tomorrow is to help make the most informed choices possible.

As Mohamed El-Erian said Opinion Article For the Financial Times, “quite a lot of people are waiting to hear what only Powell can provide-when and how the Fed will get rid of the Covid-related emergency measures taken at the beginning of the pandemic. Recent economic data highlights this point of clarification. Necessity.”

As El-Erian also pointed out, Powell’s “favor for slow and delicate policy evolution” is well known. However, it is not well or completely understood. The Fed’s strategy shift last year was to adopt a more patient attitude towards economic expansion. As the economy approaches its full capacity, it raises the threshold for austerity. All the others—arguably the Fed itself—now need a clearer understanding of where this threshold lies.

However, I don’t think this means a detailed guide on when and how to “shrink”—that is, ending and eventually reversing the Fed’s purchase of financial securities to ease financing conditions. On the contrary, I think what Powell needs to provide is something broader but still useful. Given that the Fed tended to adopt a more patient approach to economic expansion last year, we need to explain in more detail what patience means to the Fed.

The European Central Bank has set a useful example. Although the Fed was a year late in completing its policy strategy review, it turned in a similar direction: adopting a more patient attitude when recovering from economic downturns and deflationary events. As early as the first meeting after the announcement of the new monetary policy strategy in July last year, ECB observers could learn more about what greater patience means in practice.

As its chief economist Philip Lane explain, The European Central Bank has updated its guidance on when to tighten policy: until inflation reaches (or exceeds!) the 2% target, “far before the end of its forecast range and continue for the remainder of the forecast range.” More simply, compared with the previous policy strategy, inflation must rise in time to justify monetary tightening (the current forecast period is up to 2023).This is an ingenious way to make patience concrete. It should be easy to understand for citizens, businesses, and market participants. I have a question On how the European Central Bank credibly promised to be more “persistent”-this is a key word in its strategic review.

This is just an example of what Powell can do. There are other options. For example, under Powell’s supervision, the Fed has more bluntly expressed the importance of economic inequality, including the effectiveness of monetary policy. Its strategic review has elevated the importance of full employment to monetary policy. It can use this to make “patient” more maneuverable.

The effect of aggregate demand stimulus takes longer Reach out to more edge chemical people — Minorities and people with less formal education. So why not include statistics on the margins of the labor market more prominently in the Fed’s monetary policy recommendations, and link the austerity forward-looking guidance to these marginal quantifiable full employment, rather than just average? The economic case for this is reliable—there is no better place to announce this than the Jackson Hole seminar. “Macroeconomic Policy in an Unbalanced Economy”.

Other readability

  • My view of Afghanistan’s economy is that the US-led coalition promotes corruption and fails to ensure that all Afghans live a more prosperous life. Neglecting a peace that can be wonThis does not mean that there has been no improvement in 20 years-on the contrary, because FT chart is here Shows that many things have become better, albeit from a very low initial level.The country’s exiled central bank governor wrote an article for the Financial Times to introduce him The looming economic challenge.

  • this Debate among free lunch readers Multinational productivity differences continue. Many readers in Canada have told me that self-checkouts are ubiquitous in their supermarkets, at least in large cities—but they often coexist with the preference of sometimes hiring low-skilled labor at manual checkout counters.
    In addition, another reader Ulrich wrote: “The example of Hugh drinking coffee in the highway service area… It may be more like a symbol of national taste than economy. For a long time, Germans have liked filter coffee. This can be done easily with a self-service coffee machine. The trend of barista-made coffee started earlier in the UK, probably because the existing choice is instant coffee. However, in the past few years, you will see it at German highway service stations More and more barista staff coffee bars.”
    Keep commenting!

Digital news

  • In a rare bipartisan cooperation, the US government forced hospitals to announce prices they negotiated with private medical insurance plans. The New York Times checked the data and the price change is Simply shockingThe US healthcare market has completely collapsed: neither buyers nor sellers seem to know the prices that should theoretically guide market efficiency.

  • The International Monetary Fund created global helicopter money by issuing special drawing rights worth US$650 billion, which can be used by central banks.Kristalina Georgieva, Managing Director of the International Monetary Fund Wrote in FT She thinks how they should be deployed.

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