Friday, June 8, 2012

Getting Out In Front of Economic Headwinds

Scott Sumners says the Fed and the ECB could learn something from the Reserve Bank of Australia:
Australia has a 2-3% inflation target and faster trend RGDP growth than the US.  That sort of nominal growth would be beyond my wildest dreams for the US.  Rather think about how proactive they are.  Unemployment is low and inflation is in the sweet spot.  But they are easing monetary policy because they see the global slowdown, which for some reason the much more sophisticated Fed and ECB don’t quite comprehend.  They aren’t cutting rates because 5.5% NGDP growth is too low, they are cutting rates to make sure that 5.5% NGDP growth happens.
Imagine that, a central bank that gets out in front of economic headwinds.  What would it take for the Fed and ECB to start acting like that?

1 comment:

  1. My guess is that, at present at least, the choice is easy for Australian monetary policy makers, because their economy is largely driven by commodity production, meaning that the most likely cause of a slowdown (Asian demand for commodities) will go hand-in-hand with falling inflation.