Fed: Time has come to critically reassess prevailing policy frameworks - SocGen

Kit Juckes, Research Analyst at Societe Generale, notes that “the time has come to critically reassess prevailing policy frameworks and consider adjustments to handle new challenges, specifically those related to a low natural real rate of interest” That’s the introduction to the August 15 Economic Letter from the San Francisco Fed, written by John Williams.

Key Quotes

“I don’t suppose for a second that the timing, just ahead of the Jackson Hole conference, is a coincidence. And I have no clue how the inference – we need help from fiscal policy and we need a new way of thinking about monetary policy – works alongside the FOMC’s current obsession with trying to get markets to price in a higher pace of Fed rate hikes, so that if the Fed does need to act in September or December, it can do so without causing excessive volatility.

If, as well as a cry for easier fiscal policy, the message from Jackson Hole ends up being that rates may rise sooner than expected but will only rise at a glacial pace, then short-term turbulence around FOMC meetings aside, there won’t be a lot on the horizon either to drag the longer end of the Treasury market out of its range, or to dissuade investors from their yield hunting. Nor, indeed, will there be much to justify range-busting in major G10 currency pairs. We sent out a short AUD/MXN recommendation yesterday in that spirit.”