Fed bogey may change

Research work done by economists at IMF as well as work done by Goldman Sachs economist Jan Hatzius are beginning to suggest that the Federal Reserve may be planning to change the threshold for its Zero Interest Rate Policy (ZIRP) from their original 6.5% unemployment rate and 2.5% inflation rate to perhaps a lower rate of unemployment such as 6.0% to even 5.5% rate.

In some ways lowering the threshold would makes sense given that the headline unemployment rate of 7.2% has fallen mainly because of a 35-year low in labor-force participation, as well as the current deflationary environment and a low velocity for M2 a gauge for money supply. However prolonging this sugar high via artificially keeping interest rates low will obviously have many risk and consequences which requires not just skills but also a bit of luck by policy makers to manage to avert another major financial crisis.

The views expressed in this blog reflect those of Grayeli Investment Management as of the date of the write up. Any views are subject to change at any time based on market or other conditions, and Grayeli Investment Management disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results.

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