From Thomas Hoenig, Former President of the Federal Reserve Bank of Kansas City at the FinRegRag, September 2:
The U.S. economy is searching for a new equilibrium as government policies affecting trade, private investment, and fiscal programs take effect and change the working dynamics of the economy. As the supply and demand of goods and services, labor markets and investment conditions change, they create new risks, new opportunities and great uncertainty. In the middle of this new dynamic, the Federal Reserve is adjusting monetary conditions within which the economy must settle. It now finds itself at the center of controversy as it seeks to find the policy that best serves the economy’s long-term best interests.
At a recent symposium in Jackson Hole, Wyoming, Fed Chairman Jay Powell outlined many of these forces and their potential effects on the economy. He paid particular attention to the balance between employment and inflation. He acknowledged that unemployment remained low and inflation remained above its target, but he was increasingly concerned that given recent adjustment in the employment numbers, the labor market could quickly weaken, slowing consumption and economic growth. While he also recognized that inflation was above the Fed’s target rate, he appeared to put less emphasis on inflation, concluding that “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
The Fed is in a difficult spot as the economy seeks a new equilibrium. Powell is right to acknowledge the tradeoffs and risks that the Fed must consider in its policy choices. The case for an interest cut isn’t all that clear, however. With high and rising inflation, an ever-increasing national debt and the public’s fear of inflation, the Fed would be wise to wait until the employment and inflation numbers are reported before the September FOMC meeting before hinting at the FOMC’s next move.
Changing Dynamics....
....MUCH MORE
