MNI INTERVIEW: Ex-Fed Meyer Sees Fed Approaching Soft Landing

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve appears poised for a soft landing of

the U.S. economy and is unlikely to make changes to its policy rate in 2020,

former senior Fed official Laurence Meyer told MNI.

     "We are at a good place in the economy. We are at a good place in monetary

policy," Meyer said, a former Fed governor from 1996 to 2002.

     "We can say at this point there's no reason to expect that the Fed will

change rates through this year," he added. "We're approaching a soft landing in

that forecast. We're growing near trend."

     However, what it might take to change the Fed's mind could be less than the

phrase "material reassessment" would suggest, Meyer said, who is now head of 

Monetary Policy Analytics. 

     "It can be relatively small changes if it persists, as opposed to some

really big change that shocks the economy."

     --BALANCE SHEET COMMUNICATIONS

     Meyer defended the Fed's actions to grow its balance sheet after an

unexpectedly severe liquidity crunch in money markets in September, saying it is

not quantitative easing or some stealth version of it but a necessary adjustment

to implement policy effectively in the ample reserves regime. 

     However, the central bank may need to improve its communication on the

actions, he said. QE is buying long-term assets that lower long-term rates

relative to short-term rates, whereas the Fed is buying short-term Treasury

bills, Meyer said, "but there's a difference between what they think they are

doing, how they're interpreting it, and what the markets are seeing."

     -- FRAMEWORK REVIEW

     Asked about the Fed's review of its policy framework, Meyer said the Fed

wants to redefine its symmetric inflation target in a way that is more useful

for effective monetary policy, but officials will not want to tie their hands

with a commitment strategy.

     They're not going to "knock the socks off" with changes, he said.

     It's possible the FOMC will release a second brief communication alongside

edits to its statement on longer-run goals and monetary policy strategy at the

conclusion of the review, Meyer speculated. That could contain a list of

firefighting tools for the next recession, including yield curve control, he

said. 

     But with the Phillips curve as flat as it is, it's not clear how much

policymakers could push inflation above 2% by stimulating the economy and

lowering unemployment. 

     "Central banks have lost some control over inflation and all of these tools

don't compensate for that. All they do is make it possible for you to stimulate

aggregate demand more at the zero bound," he said. 

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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