Fed enters the most difficult phase of monetary policy


The Fed is currently maintaining its monetary base 2.9 percent above its year-earlier level because it apparently believes that the economy will continue to grow in the months ahead at a pace consistent with the objective of price stability, defined as the core PCE inflation rate of 2 percent or less.

Some observers may take that as a rather heroic assumption. Consumer prices are already growing at an annual rate of 2.1 percent, and import prices in the year to January soared 3.6 percent. Import tariffs will make that worse.

More generally, Washington’s intent to move from free to reciprocal trade regimes is bound to lead to rising price tensions in an economy driven by hugely expansionary monetary and fiscal policies well above its potential and non inflationary growth.

U.S. bond prices will keep falling. Equities will resist better, partly because corporate profits will benefit from subdued wages and from the strengthening growth in Europe and East Asia.

Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment strategy. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Business School.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

Source link

Products You May Like

Articles You May Like

Why Bear Stearns could absolutely happen again on Wall Street
How to plan for both financial goals and setbacks
Not much upside left for the market here, but these ‘secular growth’ stocks should boom
Boeing and Goldman have been responsible for keeping the Dow afloat this year
It will cost you if you fail to take out retirement cash by this deadline

Leave a Reply

Your email address will not be published. Required fields are marked *