Federal Reserve’s two pronged mission
- Maximum employment
- Price stability at 2% inflation
Indicators utilized to proxy inflation
- Unemployment levels
- wage levels
- consumption levels
- Agriculture
- manufacturing
- Business investments
- trade levels
Departments overview
US treasury and Federal Reserve are non-political entities
- Government
- US treasury – controls exchange rates
- Federal reserve focus on domestic concerns only
Observations
- will not act on sentiment driven from cross currents like Trade war and China’s deleveraging
- will wait to see more of how trends pan out before acting
- most countries find it challenging to sustain a 2% inflation rate
- wage level increases has remained subdued despite increase demand for labor
- balance sheets of banks are well stress tested
- balance sheets of non-banks like mutual funds are not well tested