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Economic Optimism Amid Uncertainty: FOMC Contemplates Two Scenarios

By News Desk - Oct 18, 2023, 01:05 PM ET
Last Updated - Oct 18, 2023, 01:06 PM EDT
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The U.S. Fed Reserve is closely monitoring the interest rates although there is reason to be happy about the recent employment and inflation numbers.

Federal Reserve Governor Warns of Economic Dichotomy, Contemplates Future Scenarios

Washington D.C., October 18, 2023 – U.S. Federal Reserve Governor Christopher J. Waller has said that while recent months have seen a surge in positive news concerning maximum employment and stable prices, concerns loom over the sustainability of this economic prosperity.

In an address at the Distinguished Speaker Seminar held at the European Economics and Financial Center in London, United Kingdom, Waller discussed two distinct scenarios that have been occupying the minds of Federal Reserve policymakers. 

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The first scenario, outlined in the September Summary of Economic Projections (SEP) by FOMC participants, contemplates a potential slowdown in the real side of the economy. This scenario aims to ease demand to better align with supply, thereby helping inflation move closer to the coveted 2 percent objective. If this scenario unfolds, it is likely that the policy rate will remain steady to facilitate the economy's desired evolution.

However, the second scenario keeps policymakers on edge, where demand and economic activity continue to surge. This scenario poses a risk of exerting persistent upward pressure on inflation, potentially halting or even reversing the progress made toward the 2 percent inflation target. To counteract this, timely action may be necessary, possibly involving further adjustments to the policy rate, to ensure that inflation returns to target levels and that inflation expectations remain anchored.

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