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posted on 15 July 2017

Macroeconomic Surprises Involving Employment And Inflation

from the Dallas Fed

-- this post was authored by Christoffer Koch and Julieta Yung

Macroeconomic surprises involving employment and inflation - reflecting the Fed’s attempts to achieve its dual mandate to promote full employment and price stability - increased in importance during the zerolower-bound period. Also, market participants were more attentive to housing market indicators and final GDP revisions.

The Federal Reserve’s Federal Open Market Committee meets eight times a year in Washington to set monetary policy. Regional Federal Reserve Banks and the staff of the Board of Governors produce economic forecasts for each of these meetings. Projections are updated based on macroeconomic data releases during the intermeeting period.

These periods usually feature one or two employment reports, vintage releases of gross domestic product (GDP), inflation data such as producer and consumer prices and other macroeconomic indicators that yield new information about the health of the U.S. economy. Thus, macroeconomic announcements play an important role in updating policymakers’ and the public’s assessment of the U.S. economy.

The conduct of monetary policy changed substantially in the aftermath of the global financial crisis. The Fed’s typical pre-2009 policy instrument was adjustment of the federal funds rate. After the downturn, policymakers set the federal funds rate at near zero - the zero lower bound (ZLB) - and the Fed’s monetary policy statements about the path of interest rates became more explicitly linked to the anticipated evolution of inflation and unemployment, known as forward guidance.

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Source: eclett/2017/ el1708.pdf

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