November 7, 2017

John Williams suggests an alternative monetary policy framework

His argument: Potential output—the maximum amount an economy can produce over the long run—is an important indicator policymakers use to gauge a country’s current economic health and expectations for future growth. However, potential output can’t be observed directly, and estimating it is difficult, even with modern, sophisticated methods. Monetary policymakers are well advised to account for the perennial problem of uncertainty surrounding these estimates in devising and carrying out policy strategies. He suggests an alternative: In light of the reality that measuring potential output is very difficult despite the best efforts, it pays to avoid overreliance on these estimates when…...

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Anticipating disaster

A new Fed Chair is always required to show his anti-inflation credentials: Booming Labor Market Could Pose Challenge for Powell and the Fed – Janet Yellen’s prospective successor may find himself needing to restrain an economy that is too vibrant: The hardest job in central banking is to take the punch bowl away from the party just when people are starting to have fun. Jerome Powell, the Federal Reserve’s prospective chairman, could soon have to assume the role of sober killjoy as he is confronted with an economy and markets that are heating up. That could put Mr. Powell in… Read More

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