US economy

Trump Urges ‘Big’ Rate Cut as Fed Faces Challenges


At the Fed, other ideas up for discussion include aiming for 2 percent inflation on average over a period of time or targeting a price level, rather than a rate of change. Either plan would probably leave interest rates lower for longer after recessions as officials tried to make up for inflation shortfalls.

Some central bank watchers worry that tweaks to the framework could prove inadequate to restock the monetary arsenal, especially because Mr. Powell and his vice chair, Richard H. Clarida, often characterize the rethinking as “evolution, not revolution.”

“I hope that the Fed leadership will not feel constrained from adopting a new inflation control framework, merely because they have said that they’ll be evolutionary,” said Mr. Wilcox, who favors a higher inflation target. He said he also hoped for “an acknowledgment” that “there is a serious risk that our tools will not be adequate for fighting the next recession.”

“They need to give Congress the opportunity to pre-position a fiscal response to the next recession,” Mr. Wilcox said, indicating that the Fed should be transparent about its lack of monetary policy options so lawmakers can start to think of solutions.

The Fed does have more wiggle room than its counterparts in Europe, Japan and the United Kingdom, which have very low or even negative interest rates.

If the global economy tips into outright recession, “the Fed has monetary policy room to address all of that,” Mark Carney, the head of the Bank of England, said in New York last week. “The Bank of England, with various tools, is close, but not all the way there, and the E.C.B. is farther away.”

Mr. Draghi said Europe’s central bankers are unanimous on one point: Fiscal policymakers, the elected officials who make tax and spending decisions, need to step up their game.



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