viernes, 21 de agosto de 2015

viernes, agosto 21, 2015

Fed Could Be Constrained by Shifting Growth and Inflation Outlook

By Jon Hilsenrath
 

The Federal Reserve’s official policy statement in July described the risks to U.S. economic growth and employment as “nearly balanced,” but the minutes of the meeting released Wednesday suggested officials don’t strongly believe their own assessment. Officials and Fed staff seem to see risks accumulating on the downside for economic activity, as well as inflation.

Take the staff first. Forecasts for growth and inflation were trimmed. A stronger dollar would weigh on exports and lower oil prices would weigh on inflation, the staff concluded. Since the meeting, the dollar has gotten stronger and oil prices moved lower, likely intensifying that worry.

Moreover, staff was worried that the Fed would be poorly equipped to respond if another shock hits the economy. In other words, the Fed’s own limited policy toolkit – an issue the Wall Street Journal explored in a recent article – was seen as another threat.

“The risks to the forecast for real GDP and inflation were seen as tilted to the downside, reflecting the staff’s assessment that neither monetary nor fiscal policy was well positioned to help the economy withstand substantial adverse shocks,” the minutes showed.

The assessment among policy makers that risks to the outlook for growth were balanced included a qualifier in the minutes that didn’t show up in its official policy statement. Officials are worried about the rest of the world: “Although many continued to see some downside risks arising from economic and financial developments abroad, participants generally viewed the risks to the outlook for domestic economic activity and the labor market as nearly balanced.”

Since the meeting, Chinese officials have devalued their currency, a move that could be seen as another sign of worry in China about its own growth outlook. Meanwhile growth figures in Europe for the second quarter were anemic and Japan’s economy contracted.

The minutes also included multiple references to risks to the inflation outlook: “Some members continued to see downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices.”

Taken altogether it sounds like a group that needs to be bucked up by stronger economic data in the weeks ahead if it is going to decide to act at its September policy meeting. If Fed officials end up going into their September meeting with lower projections for growth and inflation this year or next, it is going to be hard for them to act.

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