US Fed – Warsh & The Little Trojan Ponies
The FOMC meeting will change nothing. But the Dot Plots will be telling for the future. And the things to watch for are: •
- Hints at the end of forward guidance. •
- Replacing the inflation target currently used by the Fed by a measure of the “trimmed mean” that would cut out extremes and make it easier (at the present juncture) to cut rates and ignore the Middle East “kerfuffle”. •
- An increased role for scenario forecasting (especially AI as the saviour of the US economy). •
- Ambitions to review the role of the Fed with regard to mission creep or the size of its balance sheet.
- These are potentially Little Trojan Ponies whose presence could herald a further step towards the erosion of Fed independence. That could be bad for the US$ if President Trump’s power erodes and perception of the US as a safe haven wanes as the effects of the Middle East war become more apparent.
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