U.S. Outlook: Monetary policy tighter without tightening

Scott Anderson
Posted by Scott Anderson
Chief Economist

With the April FOMC meeting coming, it’s a good time to add some points to the go-slow approach to an initial rate hike touted by Chairwoman Yellen and others.

Graph showing deviation of US interest rates from Germany and Japan.The U.S. economic growth slowdown in Q1 and downside risks from Europe and China are good reasons to be cautious, but there are a few more.

For more on what this means and other economic developments this week, see my full analysis. Highlights are outlined below, followed by a link to the full U.S. Outlook report, delivered on April 24.

Key observations:
  • Low inflation has already had an impact on interest rates without the Fed even touching the Fed funds target rate.
  • The low-interest-rate environment has become “the new normal,” so any significant deviation will have a big, possibly negative, impact.
  • Without stronger bank lending trends, the Fed’s end of QE3 may be all the tightening the economy can absorb.

Click here to read my full report.

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