Given the Treasury’s respect for the independence of the Fed, participants will rarely discuss monetary policy, although they occasionally touch on the economic outlook. Regulatory issues, debt management, or international economic issues tend to dominate. But the contacts made and refreshed at these meetings are extremely constructive when discussions between the Federal Reserve and Treasury are called for, again most often on regulatory issues.
Together, these factors imply that the small amount of excess demand now in the economy will be eliminated by mid-2007. Core inflation is expected to remain a bit above 2 per cent in the coming months but return to the 2 per cent target by the middle of 2007 and remain there through to the end of 2008.