Isaac Cohen

The promise to “proceed carefully” was perhaps the most quoted phrase from the speech by Federal Reserve Chairman Jerome Powell at the annual conference, held in Jackson Hole, Wyoming, last August 25. Sponsored by the Federal Reserve Bank of Kansas, the conference provides the venue for the most expected monetary policy statement of the return from the summer break. https://www.federalreserve.gov/newsevents/speech/powell20230825a.htm

Thus far, the central bank has tightened   monetary policy significantly, from almost zero interest rates, to between 5.25 and 5.5 percent, the highest rate in 22 years. As a result, inflation as measured by the index of personal consumption expenditures decreased, from almost 7 percent a year ago, to 3 percent. According to Princeton Professor Alan S. Blinder, this is “almost miraculous progress” (The Wall Street Journal 09/06/23), because it was accomplished together with the creation of more than 3 million new jobs, while the unemployment rate remained around 3.5 percent, the lowest in 50 years.

Even so, Chairman Powell said, “inflation remains too high,” above the 2 percent objective, still far from achieving a “neutral rate,” at which monetary policy neither stimulates, nor restrains economic activity. The task ahead, as described by Chairman Powell, is “balancing the risk of tightening monetary policy too much against the risk of tightening too little.”

The next meeting of the central bank’s Open Market Committee will be held next week in Washington, which will allow understanding better the meaning of “proceeding cautiously.”


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