This European survey examines (a) If the European Central Bank changed its inflation target from 2% to 3%, the long-run costs of inflation for households would be essentially unchanged; (b) There is a substantial benefit to having higher average inflation and by implication a higher nominal interest rate so as to avoid hitting the zero lower bound; (c) The fact that the Eurozone encompasses 20 countries – and thus the European Central Bank has 20 masters rather than one like the US Federal Reserve – eliminates the risk of fiscal dominance
Keyword: interest rates
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This US survey examines (a) The Federal Reserve should be setting interest rates with the assumption that there will be no measurable effects of US tariffs on inflation by the summer of 2026; (b) If Federal Reserve Governor Cook is forced to leave her position, the inflation risk premia on US government debt will rise substantially
This US survey examines (a) If the Fed changed its inflation target from 2% to 3%, the long-run costs of inflation for households would be essentially unchanged; (b) The Fed’s revised strategy announced in 2020 - focusing on employment shortfalls and with a more flexible interpretation of the inflation target - has made little practical difference to monetary policy outcomes in the past five years
This US survey examines (a) Long-run US fiscal sustainability will require some combination of slowing the growth of spending on Medicare, Medicaid and Social Security benefits and/or tax increases, including higher taxes on households with incomes below $400,000; (b) Issuing an additional $2.3 trillion of debt over the next 10 years, as is projected by the Congressional Budget Office if the House Reconciliation Bill is enacted, will substantially raise interest rates on government debt over that period
This Finance survey examines: (a) Foreign demand for US treasury securities results in substantially lower interest rates on these instruments; (b) The recent volatility in Treasury market prices is primarily due to concerns about US macroeconomic prospects
This Finance survey examines that it seems likely that Japanese authorities intervened in the foreign exchange market recently to prop up the yen – see, for example: https://www.ft.com/content/455784ec-0465-46ee-8c73-fc5ce3e31c37. In such circumstances, intervention refers to purchases or sales of domestic or foreign currency without changing the monetary policy stance (a) Large-scale intervention by public authorities in currency markets can move exchange rates substantially (b) The effectiveness of foreign exchange interventions can last beyond one month
This Finance survey examines (a) The Federal Reserve has begun quantitative tightening (QT) to reduce the size of its balance sheet. Fed holdings of Treasury securities have declined by $800 billion relative to the March 2020 peak. The Fed currently holds $4.9 trillion of Treasury securities, significantly larger than the $2.5 trillion holdings prior to the Covid pandemic. A reduction in Fed holdings of Treasury securities measurably increases the interest rate on long-term U.S. Treasury bonds (b) A reduction in Fed holdings of Treasury securities measurably increases volatility in the Treasury market
This week's European Economic Experts Panel statements:
A) The ECB should aim to achieve an inflation rate that averages 2% over time.
B) The ECB should take account of the environmental implications of its policy decisions.
C) The objectives set for the ECB by Treaty should make maximum sustainable employment of equal importance as price stability.
This week's US Economic Experts Panel statement:
The Fed's revised strategy to focus on employment shortfalls and a more flexible interpretation of the inflation target will make little practical difference to monetary policy outcomes over the next decade.
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