Is the Fed Behind the Curve?

Senior Federal Reserve officials have commented recently on how undesirable it would be if the Donald Trump administration implemented expansionary fiscal policy right now.

This new view is inconsistent with the Fed’s prior position that the labor market is not tight and that meaningful room remains for additional hiring. The Fed argued for some time that there still was plenty of slack in the labor market — the central bank’s primary justification for raising interest rates only very slowly over an extended period. If the Fed really believes that there is a lot of room for incremental hiring and that inflation will remain at bay for another two years, a more stimulative fiscal policy should be welcomed, not discouraged.

In my judgment, rates are too low and the Fed’s monetary policy is overly accommodative, and this will become increasingly apparent as inflation increases in response to economic growth that pushes unemployment even further below full employment. The Fed seems to be shifting its view and adopting that perspective, too, albeit slowly.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.