Category Archives: Monetary Policy

Mini-Revolt @ Fed Monetary Policy Conference

Source: Bloomberg, Jun 2019

The research conference, hosted by the Chicago Fed, is the centerpiece of a yearlong internal review of the central bank’s inflation target announced in November. Since then, the issues at hand have become more pressing. Inflation has drifted below the Fed’s 2% target and an escalating trade war has pulled forward concerns about recession risk.

advocates of another approach — targeting the growth of nominal income — staged a mini-revolt at Wednesday’s first session. After noted monetary economist Lars Svensson gave that approach short shrift in his presentation, a trio of conference participants pointed to its advantages during the question and answer period, including St. Louis President James Bullard.

Under such a strategy, the Fed would target the growth of nominal gross domestic product — which unlike real GDP isn’t adjusted for inflation. (So if inflation rises 2% and real GDP rises 4% then nominal GDP goes up 6%.)

Svensson argued that a nominal GDP target would not be consistent with the Fed’s dual mandate to achieve price stability and maximum employment.

“Lower GDP and employment is fine as long as prices are higher,” Svensson, a Stockholm School of Economics professor and former Swedish central banker, said.

Bullard took issue with that assessment. “I think Lars is off base here,” he said.

He argued that contract holders, such as homeowners with 30-year mortgages, were concerned with the growth of the overall income they have to meet those obligations.

Related Resource: Twitter, Jan 2018