Suchergebnisse

This Commentary estimates the implied parameters of simple monetary policy rules using the median paths for the federal funds rate and other economic variables provided in the Federal Open Market Committee's Summary of Economic Projections (SEP). The implied policy rule parameters appear to have changed over time, as the federal funds rate projections have become less responsive to the unemployment gap. This finding could reflect changes in policymakers' preferences, uncertainty over other aspects of the policy rule, or limitations of estimating simple monetary policy rules from the median SEP paths.

Using a flexible statistical model to project inflation outcomes into the future, this Commentary finds that the most likely path for inflation based on recent inflation dynamics is generally similar to what would have been expected given inflation dynamics in the late 1990s, but there is more uncertainty around the forecast now than in the late 1990s.

We take a closer look at the connections between wages, prices, and economic activity. We find that causal relationships between wages and prices are difficult to identify, and the ability of wages to help predict future inflation is limited. Wages appear to be useful in assessing the current state of labor markets, but they are not necessarily sufficient for thinking about where the economy and inflation are going.

Using a statistical model, we find that three factors explain most of the decline in residential investment at the end of 2013 and the beginning of 2014: the increase in mortgage rates since early 2013, the unusually cold winter, and a modest tightening of lending standards in the residential mortgage market. Future prospects for residential investment depend heavily on mortgage rates. A return to normal weather and easing lending standards would boost activity, but even moderate increases in mortgage rates through the end of next year could restrain residential investment going forward.

The Federal Open Market Committee has been providing guidance to help markets anticipate when it will begin raising the federal funds rate target. The most recent guidance suggests that the target will not change at least until after an unemployment or inflation threshold is breached. We use a forecasting model to estimate when these thresholds are likely to be breached. We also consider how an inflation floor would affect the timing of liftoff.

Looking across a range of statistical models, we consider the likely path of future inflation and the uncertainty surrounding the models' predictions. The models suggest that inflation is on a rising path, and while inflation forecast uncertainty is somewhat elevated relative to the norms of the last 20 years, core inflation uncertainty is relatively low. For both inflation rates, forecast uncertainty is much lower as of the first quarter of 2015 than it was around the Great Recession.

Monetary policymakers often use simple monetary policy rules, like the Taylor rule, as an input into their decision-making. However, there are many different simple rules, and there is no agreement on a single "best" rule. We look at the federal funds rates coming from seven simple rules and three economic forecasts to investigate the range of results that can be produced. While there are some commonalities, we document that the differences in the federal funds rates suggested by the rules can be quite pronounced.