Goldman Sachs chief economist Jan Hatzius proposes designing a new Financial Conditions Index (FCI).

Chanel Holden

2018-07-19 18:38:00 Thu ET

Goldman Sachs chief economist Jan Hatzius proposes designing a new Financial Conditions Index (FCI) to be a weighted-average of interest rates, exchange rates, stock prices, and credit spreads. Each weight corresponds to the direct marginal contribution of each macro variate to real GDP economic growth. Hatzius amends a New Keynesian macroeconomic model to embed an FCI in a Taylor monetary policy rule that induces the central bank to ease the FCI when either inflation or employment falls below mandate-consistent thresholds. This macroeconometric analysis suggests an FCI-driven policy rule for maintaining the neutral interest rate that better contains inflation near full employment.

The Trump administration's chief economic advisor Larry Kudlow engages in a hot and healthy debate with several economists who warn of an economic recession that might arise from the Sino-American trade war with higher U.S. budget deficits and tax cuts. Kudlow advocates the optimistic outlook for the U.S. economy in light of both robust employment and 3.5%-4% real GDP growth in mid-2018. Moreover, Kudlow even emphasizes that the current U.S. economic boom may continue until 2022-2024.

In contrast, some other eminent economists such as Mark Zandi (Moody's chief economist) and Ken Griffin (Citadel CEO) are less optimistic about the current U.S. economic boom. Zandi shares his fresh insight that the Federal Reserve continues its interest rate hike to dampen inflationary pressure until a recession occurs early in the next decade. Griffin considers a murkier outlook that the Trump tax cuts may have pulled forward both consumer and business demand.

The current economic boom is the second-longest in U.S. history and thus may or may not sustain in the next decade. Treasury Secretary Steve Mnuchin reiterates America’s long-term credible commitment to maintaining a strong greenback with minimal risk of a currency war. In accordance with Mnuchin's recent remarks after the G20 summit of finance ministers, Mnuchin needs to dismiss the arcane idea of U.S. dollar intervention.  

On balance, the U.S. Treasury and Federal Reserve can consider the new FCI in order to make better and wiser economic policy decisions.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.

James Campbell

2019-04-07 13:39:00 Sunday ET

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019.

CNBC news anchor Becky Quick interviews Warren Buffett in early-2019. Buffett explains the fact that book value fluctuations are a metric that has lost rele

+See More

The global asset management industry is central to modern capitalism.

Amy Hamilton

2022-02-22 09:30:00 Tuesday ET

The global asset management industry is central to modern capitalism.

The global asset management industry is central to modern capitalism. Mutual funds, pension funds, sovereign wealth funds, endowment trusts, and asset ma

+See More

Nobel Laureate Paul Milgrom explains the U.S. incentive auction of wireless spectrum allocation from TV broadcasters to telecoms.

Rose Prince

2023-11-21 11:32:00 Tuesday ET

Nobel Laureate Paul Milgrom explains the U.S. incentive auction of wireless spectrum allocation from TV broadcasters to telecoms.

Nobel Laureate Paul Milgrom explains the U.S. incentive auction of wireless spectrum allocation from TV broadcasters to telecoms. Paul Milgrom (2019)

+See More

New York Fed CEO John Williams sees no need to raise the interest rate unless economic growth or inflation rises to a high gear.

Joseph Corr

2019-02-28 12:39:00 Thursday ET

New York Fed CEO John Williams sees no need to raise the interest rate unless economic growth or inflation rises to a high gear.

New York Fed CEO John Williams sees no need to raise the interest rate unless economic growth or inflation rises to a high gear. After raising the interest

+See More

Nobel Laureate Joseph Stiglitz maintains that globalization only works for a few elite groups.

Becky Berkman

2019-08-09 18:35:00 Friday ET

Nobel Laureate Joseph Stiglitz maintains that globalization only works for a few elite groups.

Nobel Laureate Joseph Stiglitz maintains that globalization only works for a few elite groups; whereas, the government should now reassert itself in terms o

+See More

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.

Becky Berkman

2018-05-15 08:40:00 Tuesday ET

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation. Republican Senate passes the

+See More