-
Policy
Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM POLICY: -
EM Policy
EM Policy
Exclusive interviews with leading policymakers that convey the true policy message that impacts markets.
LATEST FROM EM POLICY: -
G10 Markets
G10 Markets
Real-time insight on key fixed income and fx markets.
Launch MNI PodcastsFixed IncomeFI Markets AnalysisCentral Bank PreviewsFI PiFixed Income Technical AnalysisUS$ Credit Supply PipelineGilt Week AheadGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance CalendarsEZ/UK Bond Auction CalendarEZ/UK T-bill Auction CalendarUS Treasury Auction CalendarPolitical RiskMNI Political Risk AnalysisMNI Political Risk - US Daily BriefMNI Political Risk - The week AheadElection Previews -
Emerging Markets
Emerging Markets
Real-time insight of emerging markets in CEMEA, Asia and LatAm region
-
Commodities
-
Credit
Credit
Real time insight of credit markets
-
Data
-
Global Macro
Global Macro
Actionable insight on monetary policy, balance sheet and inflation with focus on global issuance. Analysis on key political risk impacting the global markets.
Global MacroDM Central Bank PreviewsDM Central Bank ReviewsEM Central Bank PreviewsEM Central Bank ReviewsBalance Sheet AnalysisData AnalysisEurozone DataUK DataUS DataAPAC DataInflation InsightEmployment InsightGlobal IssuanceEurozoneUKUSDeep DiveGlobal Issuance Calendars EZ/UK Bond Auction Calendar EZ/UK T-bill Auction Calendar US Treasury Auction Calendar Global Macro Weekly -
About Us
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Real-time Actionable Insight
Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.
Free AccessMNI INTERVIEW: Fed Should Restore Simple 2% Goal-Brunnermeier
The Federal Reserve should abandon its policy of targeting averaging inflation over some undefined period of time and restore a simpler 2% goal, Markus Brunnermeier, former adviser to the U.S. central bank and co-author of a new G30 paper, told MNI.
“Going back would be simpler,” said Brunnermeier, a Princeton University economics professor who has also worked with central banks in Germany and Japan.
Fed officials could also make it clear that the 2% target isn't subject to precise fine-tuning, which would help monetary policy from over-reacting to small deviations, he said.
“Don’t make huge commitments, just because inflation is 1.8 instead of two,” he said in an interview. “I’m not arguing particularly for a range, but not such a sharp ‘it has to be exactly 2.0,’ to be a little bit more relaxed on the cycle, that’s all.” (See MNI POLICY: Fed To Consider Shift To Inflation Target Band)
In a paper with three former central bank chiefs, Brunnermeier warns policymakers are limiting room for action with complicated messages. He also criticizes them for relying too heavily on models that suggested inflation would be transitory after Covid. While emerging-market central banks were nimble as inflation surged, advanced nations' monetary policy was hobbled by unrealized fear of Japan-style stagnation and vague commitments to keep stimulus in place, he said.
DATA DRIVEN, NOT AUTOPILOT
“We are against a data-driven policy that is really a hidden form of forward guidance,” Brunnermeier said. “You should not commit to some form of forward guidance and essentially tie your hands.”
The Fed is due to re-examine its goals in 2025 after adopting a flexible average inflation target in 2020 without laying out exactly what timeframe the average would be based on. Officials said the shift would counter a long period of below-target price gains, and the G30 paper suggested such preconceptions helped lead to a delayed response when the pandemic began lifting prices.
The lesson now isn't a swing to big rate cuts Brunnermeier said, noting the stubbornness of price gains seen in the 1970s. “The one big advantage this time around was that inflation was well anchored,” he said. “It’s very important to maintain this anchor and that also means if inflation comes down, you stay on the current projection for a while and only when it’s persistently down you can loosen again.”
The U.S. economy is still being powered by a strong job market and a fiscal deficit around 7% of GDP, he said, more reason for caution about monetary easing, he said. “The monetary side has to be more stepping on the brakes in order to make sure inflation stays down.”
KEEP SOME FLEXIBILITY
Central banks should also be attentive to massive balance sheets that risk "dominance" by politicians seeking help with debt costs, or from financial institutions seeking to avoid losses on weak investments, he said.
Some central banks compounded their problems by talking about a sequence of removing stimulus between raising interest rates and switching from QE to QT, he said. (See: MNI INTERVIEW: Fed Needs Better QE Guardrails- Fed Adviser)
“If you do unconventional monetary policies which tie you down, which trap you essentially into something, you cannot react and stabilize situations," he said. “Don’t be so bold that you say you can predict in the next two years what will happen and you can tie your hands. Keep some flexibility.”
To read the full story
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.