Redefining What "Data Dependent" Means
Chair Janet Yellen this week seized control of conflicting Fed messaging and forcefully reasserted the FOMC’s new reaction function. In doing so, she essentially redefined what “data dependent†means.
It no longer means mechanically reacting to every domestic inflation impulse. Instead, the new data dependent entails a broader, more holistic view of the US economy and the forces that shape it. These include the global growth outlook, financial market conditions as well as the performance of the US dollar. This new approach acknowledges that each of these factors impact US economic growth and inflation.
This week’s note discusses the policy and market implications for this shift
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