Claiming the upcoming Federal Reserve Council

Digest opened free editor

Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

The writer is the head of the Queens College, Cambridge, a consultant for Allianz and Gramsi

It was not supposed to be this way. Currently, the Federal Reserve should have been able to declare the “completed mission”, which led to the closure of the separation in a period when inflation in the United States increased and too long. By doing this, it could have indicated its success in avoiding the economic “pain” that he warned in August 2022 to address high prices.

Instead, the Federal Reserve will have to navigate in a summer whose racists see its twin goals – low inflation and the maximum employment – threatened. It will continue to hunt attacks from the White House, especially now, and it has indicated that any possible reduction this year is unlikely to be achieved until September as soon as possible. This year is required to launch a new political framework that is likely to mention many of the main palaces in the current framework.

The list of challenges does not stop here. the feeding It works in an unstable environment where historical economic relations are inputs to formulate policy are unstable. The central bank must monitor the dollar-its last weakness raises some uncomfortable questions about its long-term role in the global economy and US financial markets as a non-doubtful recipient of foreign savings. Then there is a periodic concern about the performance of the US Treasury Market.

In the federal reserve defense, many challenges are caused by factors outside his will. Four, in particular, contributed to what I think will decrease in history as an extraordinary period of economic uncertainty.

The first is, of course, transformations and shifts in the US approach Definitions. The weapon of this economic policy tool is accompanied by some confusion over the priorities of the Trump administration. Does the “escalation strategy to cancel manufacturing” depend on the higher customs tariffs to ensure a more fair trading system and is likely to be temporary? Or is it a new world of long -term customs tariffs to support budget revenues and the RSHRE process?

The second factor is the uncertainty about management policies in general, but in particular its approach to public finances. The full effects of the “Great and Beautiful” budget law that passes through Congress has not yet yet been made. It is also unclear how government workers and contracts will develop. There has been no clear vision yet on the size of plans to cancel restrictions in the White House.

The third factor is the set of unusual contradictions of data. The soft data, which embodies what companies and families feel were flashing in red for several months, warning against low growth and high inflation. Solid data, which relate to what they do, has not confirmed any of these.

The fourth factor is more positive-the possibilities of enhancing productivity of innovations, especially artificial intelligence. However, there is no consensus on the size and timing of these developments.

All of this complicates the Federal Reserve’s ability to predict and act at a time when the recession rises as danger. This also becomes more difficult by erosion of the credibility of the Federal Reserve Policy – a key factor for the directives of the active policy.

Looking at what is at stake, the central bank has no choice but to spend a lot of this summer for defense. However, it should not be limited to this. It should also continue to attack by offering a more credible monetary policy framework, including by relying on Recommendations Among the last G30 working group, for a full detection, you are part of. It includes improving communication through measures such as creating and publicly issuing an official structure to use the front direction of the policy; Predictions of publishing employees; Give explicit guidance on the differentials between employment and inflation; And develop a transparent framework for evaluating and tightening quantitative mitigation programs.

The Federal Reserve should also be more open to the use of a set of scenario analyzes, as did former Federal Reserve Speaker Bill Dodley and others He argued. It must upgrade its granular understanding of the influence of economic forces on families and companies.

Finally, there should be an additional strategic consideration of the Federal Reserve Makers this year: review the target of inflation by 2 percent. Certainly, this consideration requires the amount of change in the economy in the economy. However, it has already been explicitly excluded and repeated by the Federal Reserve. In current circumstances, this may seem a clear defensive step but may prove a lost opportunity.