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Macro Musings with David Beckworth
Skanda Amarnath and Preston Mui on the Tribal Transitory Debate and the Future of the Fed’s Framework
Jan 15, 2024
Skanda Amarnath and Preston Mui from Employ America discuss U.S. disinflation debates, future Fed policy, and the upcoming framework review. They explore the impact of energy prices, trade-offs in the inflation debate, and the complexities of rate normalization. Critiques of the Federal Reserve's approach and communication are also discussed.
01:05:55
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Quick takeaways
- One motivation for cutting rates in 2024 is to mitigate downside risks to the labor market and financial stability by front-loading rate cuts and slowing down as the economy approaches a more neutral policy stance.
- Another motivation for cutting rates is to align policy with falling inflation trends, using a proportional approach that tracks the magnitude of inflation undershoot or overshoot to provide a guideline for rate adjustments.
Deep dives
Motivation 1: Managing Nonlinear Downside Risks
The first motivation for cutting rates in 2024 is the recognition that downside risks to the labor market and financial stability can materialize quickly and be difficult to reverse. By front-loading rate cuts, the Fed can mitigate these risks and avoid significant damage to the economy. The strategy is to go faster with rate cuts initially and then slow down as the economy approaches a more neutral policy stance.
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