The Fed needs to avoid becoming passive-aggressive
Adjusting policy in a timely manner to sustain economic expansions is difficult. Given the recognised lags in monetary policy transmission, the time to meaningfully reset the funds rate has arrived.
While the chairman of the Federal Reserve Jerome Powell has indicated “the time has come ... to adjust” monetary policy, the magnitude and pace of US interest rate cuts remains undefined. I believe there is a case for a swift and significant reset lower.
The Fed, unlike other central banks, has legal dual mandate objectives for price stability and maximum sustainable employment. Given that Powell has stated confidence in inflation progressing towards the 2 per cent objective, attention is now focused on the labour market outlook.
