Summary of The Fed’s Shifting Perspective on the Economy and Its Implications for Monetary Policy

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The Fed’s Shifting Perspective on the Economy and Its Implications for Monetary Policy summary
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As any investor or executive knows, financial markets in the United States and abroad are highly sensitive to announcements from the Federal Reserve regarding its outlook for the economy and its plans to raise or lower interest rates. With such a high degree of economic uncertainty in the world today, Fed communications remain the economic tea leaves that market observers seek to interpret. Former Fed chair Ben S. Bernanke explains the recent changes in Fed thinking and what they might mean for the economy. getAbstract recommends his erudite article to Fed watchers, economists and others interested in the nuances of economic forecasting.

About the Author

Ben S. Bernanke, chair of the Federal Reserve from 2006 to 2014, is a distinguished fellow in residence at the Brookings Institution.

 

Summary

The Federal Reserve’s Federal Open Market Committee (FOMC) strongly influences Fed thinking and actions. Each participant of the FOMC, which includes the 12 presidents of the regional Federal Reserve Banks and the Fed’s board of governors, estimates key economic variables over the short and long terms on a quarterly basis. While the FOMC issues little clear guidance, it is possible to glean some insight from discussions its individual members have about the projections they provide. The FOMC’s long-term forecasts include three crucial variables: 1) output growth, based on what...


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