First published: Financial Times, 16/02/2017
Central bank may have to drop data dependency and take a more strategic approach
Painting a relatively optimistic economic picture during Congressional testimony this week, Janet Yellen confirmed the Federal Reserve would raise interest rates gradually. It was clear in the sessions, though, that other factors would soon weigh on interest rates and markets. Fiscal policy could make the Fed more hawkish. Yet the political agenda of financial deregulation, coupled with President Donald Trump’s choices for several vacancies on the Fed’s board of governors could tilt it the other way. The economic background for monetary policy is, if anything, a little firmer than it was at the last Federal Open Market Committee meeting at the end of January. The most recent employment data, especially for manufacturing, support the idea that the lengthy inventory correction that had depressed economic growth for several quarters is over. The new year purchasing manager surveys, order flow and temporary employment numbers have been positive. The Fed’s preferred inflation measure, the personal consumption deflator, has continued to edge up towards the Fed’s 2 per cent target….Read more: