The Fed's New Conundrum
​Despite extraordinary monetary policy, the US economy remains mired in what Macro Insight Group refers to as the “New Stagflationâ€. That is, GDP growth and inflation no higher than 2%. How can all the Fed’s conventional and unconventional tools be so inept? This simple question has become the Fed’s “New Conundrumâ€.
In response to this, the FOMC is in the early stages of rethinking everything and they are open to new approaches and frameworks. In fact, developing a new policy framework that can address the New Conundrum will be the topic of discussion at next week’s Jackson Hole Symposium. We do not expect any major shifts in the Fed’s policy framework. However, it is very possible the FOMC adopts some temporary ad-hoc measures over coming months.
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