Two speeches by Vice Chair Clarida and Governor Bowman, who represents community banking at the Board, highlight the predicament the Fed is in.
Clarida’s speech at a Brookings panel basically followed the familiar FOMC script: mid-year taper completion, end-2022 unemployment at 3.8% below the FOMC estimate of U* at 4%, liftoff by end-2022. At the same time Clarida added: “Realized PCE inflation so far this year represents, to me, much more than a “moderate” overshoot of our 2 percent longer-run inflation objective, and I would not consider a repeat performance next year a policy success. Second, as always, there are risks to any outlook, and I and 12 of my colleagues believe that the risks to the outlook for inflation are to the upside.”
But if inflation is too high and risks tilted to the upside, it would be inconsistent for the Fed to wait until end-2022. Clarida’s/the FOMC 2022 GDP forecast, 3.8%, is inconsistent with their end-2022 unemployment at 3.8% and rather suggests a much lower unemployment rate. For instance, assuming that the past 3 months average NFP, about 450k continues, and that participation remains flat, the US unemployment rate would fall to 4% in January. Please see my discussion here.
Two speeches by Vice Chair Clarida and Governor Bowman, who represents community banking at the Board, highlight the predicament the Fed is in.
Clarida’s speech at a Brookings panel basically followed the familiar FOMC script: mid-year taper completion, end-2022 unemployment at 3.8% below the FOMC estimate of U* at 4%, liftoff by end-2022. At the same time Clarida added: “Realized PCE inflation so far this year represents, to me, much more than a “moderate” overshoot of our 2 percent longer-run inflation objective, and I would not consider a repeat performance next year a policy success. Second, as always, there are risks to any outlook, and I and 12 of my colleagues believe that the risks to the outlook for inflation are to the upside.”
But if inflation is too high and risks tilted to the upside, it would be inconsistent for the Fed to wait until end-2022. Clarida’s/the FOMC 2022 GDP forecast, 3.8%, is inconsistent with their end-2022 unemployment at 3.8% and rather suggests a much lower unemployment rate. For instance, assuming that the past 3 months average NFP, about 450k continues, and that participation remains flat, the US unemployment rate would fall to 4% in January. Please see my discussion here.
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