Marcus Nunes/Feb 2, 2016
In early January, he thought four rate hikes in 2016 was in the “ballpark”.
In a speech yesterday he was less sanguine, but still believes monetary policy remains accommodative.
The framework under which the Fed operates, which Kocherlakota, who knows what he´s talking about, clearly set out recently, permeates the Fischer´s speech: “gradual” and “normalize”.
According to Fischer:
“[M]y colleagues and I anticipate that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate, and that the federal funds rate is likely to remain, for some time, below the levels that we expect to prevail in the longer run” [the normal level].
The saddest thing is to see that to Fischer, as well as to many other members, what informs monetary policy is employment/unemployment and oil/commodity prices! Within that framework, inflation will climb back to 2% when oil prices stabilize and unemployment falls a bit more!
In a recent post, using the federal funds future rate, David Beckworth has argued that monetary policy has been tightening since mid-2014. That´s quite true as the chart indicates.
More generally, that reflects the fact that NGDP growth, the best measure of the stance of monetary policy, has turned down since that time. This fall in AD growth has been accompanied by “negative” trends in most indicators of economic activity and sentiment.
Only when a recession is announced by the NBER will the Fed realize it has been on a tightening spree!