SAN DIEGO: Federal Reserve policymakers who last year were frequently at odds over where to set US borrowing costs opened 2020 telegraphing confidence in the state of the economy and signaling broad agreement that monetary policy is right where it should be.
In their first remarks in the New Year, heads of several regional Fed banks noted a strong job market, robust consumer spending and a rising optimism for a resolution to trade tensions that had nicked growth in the second half of 2019.
And after cutting interest rates three times last year to bring the Fed’s target to a range of 1.5-1.75 per cent and ensure global headwinds didn’t short-circuit the longest US economic expansion in history, “I think most of us think that we are well-calibrated now,” Cleveland Federal Reserve Bank President Loretta Mester said in an interview on the sidelines of an economics conference in San Diego.
Based on forecasts of her fellow policymakers on the Fed’s rate-setting committee, she said, “the committee thinks a flat path (for interest rates) ... is appropriate.” Mester had been among a handful of Fed policymakers who argued last year that the US economy did not need lower rates to continue to grow.
And while she and others noted the outlook could change if an outside shock like this week’s dramatic escalation of tensions between the United States and Iran knocks the US economy off its current trajectory, most appear happy to leave rates where they are.
“The economy is still healthy,” Richmond Fed President Thomas Barkin said earlier Friday in Baltimore. Like Mester, Barkin had been skeptical of last year’s rate cuts. “I’m encouraged by recent jobs reports and the pace of holiday spending,” with last year’s round of three Fed rate cuts helping prop up demand for homes, cars and other big-ticket consumer items, Barkin added.
Published in Dawn, January 5th, 2020
