Trouble Ahead: Why Things Won't Be Getting Easier For The Federal Reserve
On August 27, Chair Powell announced two key adjustments to the Fed’s longer-term monetary policy strategy, coming as the culmination of its nearly two-year review of the monetary policy framework.
[1] https://www.federalreserve.gov/newsevents/speech/powell20200827a.htm
[2] https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-...
[3] https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-strategy-tools-and-communications-statement-on-longer-run-goals-monetary-policy-strategy.htm; https://www.federalreserve.gov/monetarypolicy/files/monetary20200916a1.pdf
[4] https://www.federalreserve.gov/monetarypolicy/review-of-monetary-policy-...
[5] See, among others: Gruber, J.W., Kamin, S.B. The Corporate Saving Glut and Falloff of Investment Spending in OECD Economies. IMF Econ Rev 64, 777–799 (2016). https://doi.org/10.1057/s41308-016-0018-9; Chen, P, L Karabarbounis, and B Neiman (2017), “The Global Rise of Corporate Savings”, NBER Working Paper 23133. https://www.nber.org/papers/w23133; Saibene, Giacomo, 2019. “The corporate saving glut,” Journal of Macroeconomics, Elsevier, vol. 62(C). https://www.sciencedirect.com/science/article/abs/pii/S0164070417304950
[6] For evidence on the link between corporate liquidity and interest sensitivity, see Sharpe, Steven A., and Gustavo A. Suarez (2020). “Why Isn’t Business Investment More Sensitive to Interest Rates? Evidence from Surveys,” Management Science. https://doi.org/10.1287/mnsc.2019.3473
This article first appeared at the American Enterprise Institute.
Image: Reuters.