American monetary policy: Check yourself
The Federal Reserve should respond to lowerinflation by holding interest rates steady.
No statement from the Federal Reserve is complete without a promise to make decisionsbased on the data.
In each of the past two years, a souring outlook for the world economy prompted the Fed todelay interest-rate rises.
And quite right, too.
Yet if the Fed raises rates on June 14th in the face of low inflation, as it has strongly hinted, itwould bring into question its commitment both to the data and also to its 2% inflation target.
The central bank has raised rates three times since December 2015 (the latest rise came inMarch).
It is good that monetary policy is a little tighter than it was back then. The unemploymentrate, at 4.3%, is lower than at any time since early 2001.
A broad range of earnings data show a modest pickup in wage growth.
The Fed is right to think that it is better to slow the economy gradually than be forced to bringit to a screeching halt later, if wage and price rises get out of hand.
The rate increases to date have been reasonable insurance against an inflationary surge.
But no such surge has yet struck.
Unexpectedly low inflation in both March and April has left consumer prices no higher thanthey were in January.
According to the Fed's preferred index, core inflation—that is, excluding volatile food andenergy prices—has fallen to 1.5%, down from 1.8% earlier this year. It is now well below the2% target.
Nor does a surge seem imminent.
For a while, Donald Trump's promises to cut taxes and spend freely on infrastructure madehigher rates appear all the wiser.
But fiscal stimulus looks less likely by the week.
It is possible that more inflation is coming.
An economy that is stimulated will eventuallyoverheat.
The central bank may believe that lowunemployment is about to cause inflation.
But the truth is that nobody is sure how far unemployment can fall before prices and wagessoar.
Not many years ago some rate-setters put this “natural” rate of unemployment at over 6%; the median rate-setter's estimate is now 4.7%.
The only way to find the labour market's limits is to feel them out.
Falling inflation and middling wage growth both suggest that these limits are some way off, fortwo possible reasons.
First, higher wage growth could yet tempt more of the jobless to seek work (those who are notactively job-hunting do not count as unemployed).
The proportion of 25- to 54-year-olds in employment is lower than before the recession, by anamount representing almost 2.4m people.
By this measure, which fell in May, joblessness is worse in America than in France, where theoverall unemployment rate stands at 9.5%.
Second, even the moderate pickup in wage growth to date might encourage firms to investmore, lifting productivity out of the doldrums and dampening inflationary pressure.
Jobs growth in America has already slowed from a monthly average of 187,000 in 2016 to121,000 in the past three months.
That is enough to reduce slack in the economy, but only just.
Slowing it still further is needless so long as inflation remains quiescent.
It makes still less sense when you consider the asymmetry of risks before the Fed.
If tighter money tips the economy into recession, the central bank has only a little bit of roomto cut rates before it hits zero.
But if inflation rises, it can raise them as much as it likes.
This asymmetry of risks extends to the Fed's credibility.
Inflation has been below 2% for 59 of the 63 months since the target was announced inJanuary 2012.
Continuing to undershoot the goal would cast more doubt on the central bank's commitmentto it than modest overshoots would.
For too long, hawks have made excuses for the persistence of low inflation.
The latest is to blame new contracts offering unlimited amounts of mobile data, as if cheapertelecommunications somehow should not count.
The Fed should keep its promise to base its decisions on the data, and leave interest ratesexactly where they are.
Tax cuts are stuck in the legislative queue behind health-care reform, and Mr Trump'sadministration has tied itself in knots over whether it will increase the deficit.
Meanwhile, the current “infrastructure week” in Washington may generate more headlinesthan proper plans.
Even so, the Fed is expected to go ahead and raise rates this month.
The markets think there is a 90% probability of an increase of 25 basis points (hundredths ofa percentage point).
1.interest rates 利率
例句:High interest rates have stunted economicgrowth.
2.go ahead 前进
例句:You go ahead, and we'll follow on.
3.For a while 暂时
例句:She rested for a while, then had a wash and changed her clothes.
4.get out of hand 失控
例句:In practice, things can get out of hand if you aren't careful.
5.labour market 劳动力市场
例句:A million young people enter the labourmarket each year.
6.as if 似乎
例句:They completely ignore these facts as if they never existed.
7.feel out 试探出
例句:Let's feel out the situation first before we take any definite steps.
8.The central bank 中央银行
例句:The central bank will provide special loans, and the banks will pledge the land assecurity.