Economics
Fed Eyes Financial Conditions as Possible Source of Inflation
- A few on FOMC say wealth effect could be boosting spending
- Fed reaction to asset prices may come down to Phillips Curve
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The last time Goldman Sachs Group Inc.’s financial conditions index was pointing to a market environment this good, its then-chief economist was using the gauge to analyze the effects of Federal Reserve decisions that he now helps make.
New York Fed President William Dudley developed the index in the 1990s while at Goldman to create an alternative way to measure the impact of monetary policy on the economy. Now, with the index signaling the easiest conditions since 2000 after a big run-up in U.S. stocks, Fed officials are starting to wonder if they will need to address inflated asset prices in order to avoid over-inflated consumer prices.