Fra BNP Paribas:
US FOMC: Question time
We have a list of questions we would ask Fed Chair Janet Yellen after Wednesday’s Federal Reserve meeting. US Federal Reserve Chair Janet Yellen will have to face the press and answer a number of questions after the FOMC meeting this week.
Here’s what we would ask:
The Fed clearly thought Q1 weakness was temporary. May payrolls suggest it was not. Haven’t the Fed’s forecasts lost credibility?
The Fed’s Labor Market Conditions Index has been negative for five months (Chart 1). Is the labour market still “strengthening”?
Michigan five-year inflation expectations are at a new 2.3% low. Do these and break-evens (Chart 2) show expectations breaking to the downside?
Is the Fed’s reaction function clear? Why so much verbal guidance by FOMC members about a mid-year hike before the payrolls? What is the role of the financial markets in rate setting? How do stocks affect the economy and therefore the Fed?
Uncertainty about foreign developments seems important for the Fed. How about domestic uncertainty – for example, the presidential election? Why is non-residential investment falling and payrolls slowing? Is the corporate sector starting to cut costs?
How should we read the recent bond rally? Do you agree with Milton Friedman that low yields tell us policy has been tight?
Fed officials keep referring to ‘normalisation’. Isn’t this rate hikes for rate hikes’ sake?
You are monitoring everything “closely”. Doesn’t this and the absence of a balance-of-risks judgement show you are sure of nothing?
