IN THE weeks after December 17th, when the Federal Reserve raised its benchmark interest rate for the first time in nearly ten years, confident Fed officials told markets to expect four additional rate hikes in 2016. It has been obvious for a while that this guidance was wildly optimistic. Economists have been downgrading growth forecasts and markets have been retreating. At its meeting earlier this month the Fed acknowledged reality: it not only left rates unchanged, but also signalled in its projections that it expects to raise them by just two notches this year. This climbdown was not a surprise, but it does conceal a surprising admission: that American monetary policy is constrained, in part, by conditions in global financial markets.
The Fed is a collegial, consensus-driven central bank, but over the past six months an internal debate has politely unfolded. One group, led by Stanley Fischer, the vice-chairman, hews to a fairly conventional view of the Fed’s task. Mr Fischer argues that low unemployment leads inexorably to upward pressure on wages and prices. In late 2015 hiring roared ahead, even though unemployment stood at just 5%. A jump in inflation...Continue reading
Source: Business and finance http://ift.tt/1UGmlAz
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