A big battle is brewing inside the Federal Reserve, says Martin Enlund, a strategist at Handelsbanken Capital Markets, in a new presentation.
The debate centres on the Fed’s inflation target, which has taken on increasing importance in recent communications from the central bank as the unemployment rate has continued to fall while inflation has failed to rise.
One camp, personified by Chicago Fed President Charlie Evans, wants to consider overshooting the 2% inflation target in order to return the labour market back to full health sooner rather than later.
Recent comments from San Francisco Fed President John Williams, on the other hand — who recently discussed the “risk of overshooting” — are perhaps indicative of another camp, one that wants to hit the target from below.
Markets have a lot at stake depending on the outcome of this debate.
Thanks to Martin Enlund and Handelsbanken Capital Markets for allowing us to feature this presentation.