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. 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 Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 1
News Blog
The World's Most Boring Jobs
PewDiePie Weathering The Storm
American Doctors: The Prognosis Isn't Good
What We Read Today 24 March 2017
The Federal Reserve Banks Provided $91.5 Billion Remittances To The U.S. Treasury In 2016
17 March 2017: ECRI's WLI Growth Index Shows Continued Moderate Slowing Of Rate of Growth
Durable Goods New Orders Improved in February 2017
Why NASA Won't Send Humans To Venus
Rail Week Ending 18 March 2017: Short Term Rate of Growth Slowing
How Taxes And Transfers Affect The Work Incentives Of People With Low And Moderate Income
How Tourism Affects China's Current Account Surplus
Infographic Of The Day: The Habits Of Highly Successful Entrepreneurs
To Where The Maple Syrup Flows
Investing Blog
Avoiding The Trap Of The Demo Trading Account
Snap's Pre-IPO Revenue Per User In Context
Opinion Blog
Robots, Aliens, Corporate Drones - Who Will Be The Citizens Of The Future?
Is Our Hard-wired Negativity Bias Useful Or Something To Overcome?
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
24Mar2017 Market Close: Trumpcare Collapses But Little Affect On The Markets
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