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Sunday, September 24, 2017

Has The Fed Abandoned Its Reaction Function?

Tim Duy:

Has The Fed Abandoned Its Reaction Function?, by Tim Duy: The immediate policy outcomes of the FOMC meeting were largely as expected. Central bankers left interest rates unchanged while announcing that the reduction of the balance sheet will begin in October as earlier outlined in June. The real action was in the Summary of Economic Projections. Policymakers continue to anticipate one more rate hike this year and three next. This policy stance looks inconsistent with the downward revisions to projections of inflation and the neutral rate; under the Fed’s earlier reaction function, the combination of the two would drive down rate projections. Arguably, policy is thus no longer as data dependent as the Fed would like us to believe. That or the reaction function has changed. ... Continued here in new, experimental newsletter format...

    Posted by on Sunday, September 24, 2017 at 10:49 PM in Economics, Monetary Policy | Permalink  Comments (8)


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