- Repeats neutral rate is quite a way below the current policy rate
- A lot of factors drive financial markets
- It is a mistake to make conclusions about monetary policy from financial conditions alone
- Some financial metrics are loose but housing conditions for example are tight
- Changes in the neutral rate mean policy has passively tightened despite Fed cuts
- If the Fed maintains a restrictive stance of policy, it increases the chance that monetary policy will cause a downturn
- The Fed could get to neutral in a series of 50 bps cuts but does not need 75 bps cuts; economy is not dysfunctional
- Being too data dependent makes policy too backward looking; you want to make policy on the forecast
- The Fed knows the size of population and other shocks that have hit the economy, provides confidence in the forecast
- The alternative data on inflation is not that useful; but on the labour market it does signal slowing
- Possible that there is distress in some financial markets that is masked from the Fed
- When there is a series of seemingly unconnected credit problems it could be a sign that policy is too tight
Fed’s Miran is an uber dove as he was placed there by Trump just to cut rates as fast as possible. He’s been dissenting in favour of 50 bps cuts since his appointment. Thankfully, the Fed is an independent body and policy decisions are implemented on a majority basis.
I personally haven’t read one single comment from him since he was appointed because it’s just a waste of time. No serious market participant cares about him. He’s just there to participate.
This article was written by Giuseppe Dellamotta at investinglive.com.