Chicago Fed published yesterday a speech of its President Charles Evans titled “Back to the Future of Monetary Policy“, originally intended to be delivered to a conference earlier this week in Argentina.
There Evans reiterated his stance that Fed the current economic outlook “entail moving policy first toward a neutral setting and then likely a bit beyond neutral”. That was for helping the transition of the economy onto a “long-run sustainable growth path with inflation at our symmetric 2 percent target.”
He added that “we may need to tighten somewhat further if currently unexpected tailwinds emerge that push the economy well beyond sustainable growth and employment levels, potentially leading to unacceptably high inflation beyond our symmetric objective.” For example, “forward momentum imparted by earlier monetary accommodation” might be underestimated. And, there could be “greater-than-expected fiscal impetus from the recent tax cuts and spending increase”.
On the other hand, “the emergence of currently unexpected headwinds could dictate a shallower policy path.” For example, trade uncertainties could generate “adverse effects on business sentiment and spending”. And, ” firming in inflation expectations could stall out before expectations are clearly centered about 2 percent”.
