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Murder On The Disoriented Express?

Robert Brusca profile picture
Robert Brusca


  • The Fed is hiking rates at what it thinks is a modest pace.
  • The market is reacting as though the Fed is operating at breakneck speed.
  • Fed communication seems to have thrown down the gauntlet.
  • Something will have to give.

The Federal Reserve is meeting this week and nothing is expected to happen on the policy front, but there is a lot going on behind the scenes. There is no press conference scheduled, and the Fed did lift the funds rate at its last meeting. The Fed has yet to raise the funds rate in this cycle at a meeting without a scheduled press conference. We have no reason to think it will start in May.

However, there are events in the mix that could push the Fed to faster rate hikes yet this year. And there are also questions about the speed that it already plans.

The low-growth hurdle

The first pass at 2018-Q1 GDP came in at 2.3%, above expectations for it. But the surprise element in GDP was inventory strength, so that the growth overshoot at this time looks like a red herring. But the Fed is watching growth closely, as its speed limit for growth is a touch under 2%. Anything over 2% is a red flag for the Fed and a reason to slow the economic advance with monetary policy (despite the president’s objective of much higher GDP growth).

A policy emphasis on theory

The unemployment rate is below what is construed as full employment, yet wage pressures are building only very slowly. Since the notion of full employment is "abstract" and wage pressures are "real," maybe the Fed should place a bit more emphasis on what is real rather than what is abstract or theoretical? But the Fed has been into its paradigms and forecasts as a basis for policy despite its many policy missteps in recent years. That approach continues.

Inflation at long last?

In the coming months, inflation performance will be put to a stern test. The first test comes Monday April 30

This article was written by

Robert Brusca profile picture
ROBERT A. BRUSCA is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has taught in a graduate program at the Zicklin School of Business at Baruch College in Manhattan, and he has taught at Columbia University and at Michigan State University. . Mr Brusca has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial Markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International (for 16 years). Mr Brusca currently is a consultant. He was the first guest on the first day of CNBC and continues to make numerous TV and radio appearances. Mr. Brusca holds an MA and PhD in economics from Michigan State University and a BA in Economics from the University of Michigan. His wife is a financial expert on Bloomberg radio and TV. He has a daughter in college

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