Despite having predicted four federal funds rate hikes this year, and to date having delivered none, the Fed is not behind the curve on rates, according to a Federal Reserve Bank of San Francisco
"The downward shift to the FOMC's 2016 funds rate projection was not large by historical standards and appears consistent with past Fed policy behavior in response to evolving economic fundamentals," according to authors Fernanda Nechio, a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco, and Glenn D. Rudebusch is director of research and executive vice president in the department. "Therefore, if monetary policy was correctly calibrated at the end of last year, it likely remains so, and the Fed has not fallen behind the curve this year."
Since Fed officials often stress that monetary policy decision are data-dependent, changing economic conditions require adjustment in projections for monetary policy. Changes in forward guidance can confuse, the authors note. In fact there have been accusations that this is an "inexplicable deviation from past policy norms."
The authors compared the revision to this year's policy path to the previous year's and determined "the revision in the projected funds rate this year is not unusual from a historical standpoint."
