econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 05 September 2015

This Time Is Different: Lessons From Past Tightening Cycles

from the Boston Fed

Speaking to the Forecasters Club of New York, Boston Fed President Eric Rosengren explained his views on the future trajectory of interest rate increases, citing a number of reasons to expect a more gradual normalization process compared to the last two tightening cycles (1994 and 2004). He called this more modest tightening path "both necessary and appropriate" given his analysis of the data.

In particular, Rosengren noted that inflation is lower and real GDP growth is slower than at the beginning of the previous two tightening episodes.

Concerning growth, Rosengren observed that over the past four quarters real GDP has averaged only 2.7 percent, in contrast to the two previous tightening cycles. Growth had averaged 3.4 percent at the beginning of the 1994 tightening cycle, and 4.2 percent in 2004.

Concerning inflation, Rosengren cited the persistent undershooting of Fed policymakers' 2 percent inflation objective. His own view of the forecasts for inflation, he explained, largely rests on whether he thinks the economy will continue to experience growth above potential and whether the subsequent declining labor market slack will be sufficient to raise his confidence that inflation will return to 2 percent in a reasonable time frame.

Turning to employment, Rosengren noted that although the typical, widely-reported measure of unemployment (known as "U-3") is lower now than at the outset of the earlier tightening cycles of 1994 and 2004, the broader definition of unemployment ("U-6", which includes those who are working part time for economic reasons and those only marginally attached to the workforce), is not particularly low compared to the start of the prior two tightening cycles. Rosengren stated:

If one believes the broader measure of unemployment better captures slack in the economy, then labor markets would not be viewed as unusually tight for commencing the tightening cycle. This potential additional slack would also be a reason for policymakers to follow a more modest interest rate path at the beginning of a tightening cycle.

Rosengren also noted that Federal Reserve policymakers expect a gradual tightening cycle, as suggested by their published Summary of Economic Projections. The implied path is much slower than the path taken in 2004, with the federal funds rate increasing at roughly half the pace of that tightening episode.

Conditions this time "likely require a different path of tightening," said Rosengren. He also noted that:

In my own view, given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles.

The more gradual tightening cycle should enable monetary policymakers to gauge how tight labor markets can be while maintaining stable prices. The very low inflation rates here and abroad make it a particularly good time to not be too tied to imprecise measures of full employment.

[click here for full text of speech]

[click here for figures and comments]

[click here for figures]

Source

http://www.bostonfed.org/news/speeches/rosengren/2015/090115/index.htm

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical News Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Contributors


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Surprising Pevalence of Surprises in Export Specialisation
The Destruction of the Existing Workforce
News Blog
Early Headlines: Asia Stocks Mixed, Europe Lower, Oil And Dollar Down, US Oil Production Climbs, EM Bonds Pain Coming, No Trump Tax Returns, Syria Peace Talks Without US And More
Most Read Articles Last Week Ending 21 January
Why Hospitals Have Got It Wrong When It Comes To Antibiotic Resistance
The Rise Of Music Streaming Continues
60% Of Primate Species Now Threatened With Extinction, Says Major New Study
Most Attendees At Davos 2017 Come From The U.S.
What We Read Today 22 January 2017
Redneck Inventions
How Repealing Portions Of The Affordable Care Act Would Affect Health Insurance Coverage And Premiums
Grassroots Terrorism In 2017: A Small But Stubborn Threat
Earthquake Risk: Spotlight On Canada
Federal Income Taxes By Income Bracket
Infographic Of The Day: Guide To Caring For Your First Dog
Investing Blog
Market And Sector Analysis 22 January 2017
Stock Market Bubble Now Second Largest Of Past 100 Years
Opinion Blog
Trumping World Trade
Retailing In America: Bricks And Torture
Precious Metals Blog
A Slow Start For The Week Would Be Constructive For Gold
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved