NEW YORK (Reuters) – The Federal Reserve, under the pressure of the critical White House, will, even if to a large extent guess its targets of inflation and employment, conduct a broad revision in the following year on how it leads the US economy in an attempt to become more open and accountable.
PHOTO PHOTO: President of the Federal Reserve, Jerome Povell, responds to a test by Rep. Sean Duffy, R-VI, during his testimony before hearing the Financial Services Committee on the "Semi-annual Report on Monetary Policy in the Congress", in the Raiburn House Office building in Washington, USA, on July 18, 2018. REUTERS / Marie F. Calvert / File Photo
The US central bank said on Thursday it would hold a series of forums across the country to hear from a "broad spectrum" of stakeholders.
When the review is completed around mid-2019, this could lead to a reflection on the instruments that the Fed uses to achieve its objectives and the way it communicates public and financial markets policies.
An unusual announcement suggests that Fed Chairman Jerome Povell, who took over the post of central bank chief in February, wants to speed up his decade's march in order to increase transparency and accountability in order to avoid detrimental political interference. President Donald Trump has publicly shaken an increase in the rate of interest rate growth at the federal level, saying that higher borrowing costs threaten economic expansion.
"Now is the good time to analyze the way we formulate, act and communicate monetary policy," Povell said in a statement, stressing that the Fed was close to meeting the goals of inflation and employment.
The Fed plans to hold a series of events, including a research conference at its branch in Chicago in June to support the review. Policy makers then plan to talk about acquired perspectives and report on their findings.
After the financial crisis and recession 2007-2009. For years, the Fed has relied on powerful yet unconventional tools such as the purchase of trillion dollar bonds and promises of low interest rates over a longer period of time. He also began to publish anonymous forecasts by individual creators for future increases in rates and key economic indicators.
Although no guarantees are guaranteed, all this could be discussed not only by economists and investors, but also by workers, employers and civil leaders. "We are not just locked in politics because we did it earlier," Fede Fede Raphael Bostic said on Thursday in Madrid on alternative frameworks.
Under the microscope
The Fed's goal of maximum sustainable employment and stable inflation, which is interpreted as 2 percent, will also be under a wider microscope, although legislative adjustments are not expected for this congressional double mandate.
An audit is also about to address the issue, which has been fiercely debated at Vall Street, on how much the central bank will need to keep its balance sheet in the coming years.
Now that the economy grows well above potential, and unemployment drops to 3.7 percent, and inflation is roughly the Fed's target, the central bank has focused on a quarterly rate increase cycle. The review indicates that it uses peaceful waters to plan the next crisis.
Options might include choosing a range of inflation instead of a narrow target by adopting a "price level" approach that would allow inflation to be exceeded, targeting nominal GDP instead of inflation, or even even raising the target altogether.
"None of these alternative frameworks is without any challenges, but they are all worthy of a thorough review," said President Cleveland of the federal federation Loretta Mester in a speech in New York on October 25. "It might be useful to do something similar to simulated stress testing to see how each box can handle it."
Additional reporting by Jason Lange, Hovard Schneider and Ann Saphir; Editing by Marguerite Choi and Paul Simao