The effects of this angst are already showing up in the investment numbers. An additional fly in the ointment, if you will, is the recently released downward revision for GDP growth covering last year and an announced estimate of a sizable downward revision to payroll employment. One implication of these revisions is that the economy’s underlying momentum was already somewhat less robust than previously thought, even before recent developments pointed to a less rosy outlook. The Path Forward So what will the response from the Fed be to all of these developments? Our role is to navigate a complex and at times ambiguous outlook to keep the economy growing and strong. As events unfold and conditions evolve, it’s critical we understand which developments are mere bumps in the road and those that will affect the outlook in a material way over the longer term. That means maintaining a data-dependent approach that takes into account the risks and uncertainty that are weighing on the economy. I will continue to consult everything from very granular data about individuals’ experiences of employment conditions, through to the macro projections for global growth. We need to consider all of the information available and be flexible in our response. Conclusion Low inflation is indeed the problem of this era. The current outlook of moderate growth, low unemployment, but stubbornly low inflation is a reflection of the broader economic picture—the July rate adjustment an appropriate response to ease financial conditions and support the economy.
The context of the Russian war in Ukraine challenges us to reinvent the dialogue with political authorities, for at least three reasons: because geopolitics are today a major determinant of the economy; because the energy markets, their regulation and pricing are key for inflation; and lastly because fiscal choices regarding subsidies to households or even to firms are far from neutral for monetary authorities. Another challenge, and a much more tough one, is that the populist ideology creates an atmosphere of general mistrust of institutions – and still more of independent ones. In the name of popular sovereignty, we would return to a power of elected sovereign that would be absolute – and not relative anymore. At worst, this would call into question our democracy and its necessary checks and balances. At the very least, it is imperative for us to be efficient in our mandate, and to increase our accountability. 2. Efficiency of our mandate Price stability, which is a prerequisite for long-term growth, is the primary objective of most central banks. Broader mandates nevertheless apply to some, notably the Federal Reserve with its dual objective on employment and inflation. Other central banks have expressed sensitivity to inequalities, or to other issues, and have therefore contemplated a broadening of their mandate. Some observers questioned this alleged “mission creep”, and wondered whether central banks have lost sight of their primary responsibility.