Structural Reform, Not More Monetary Policy, Needed for Stronger Nominal Growth

August 1, 2016

Structural Reform, Not More Monetary Policy, Needed for Stronger Nominal Growth Photo

Last week the Federal Reserve (Fed) decided to keep short-term interest rates unchanged. The decision was widely expected by market participants, and many now expect the Fed to keep interest rates unchanged well into 2017. Globally, the Fed is not alone in pursuing easy monetary policy to spur growth and battle deflationary forces. The Bank of Japan (BOJ) and European Central Bank (ECB) have also been pursuing easy monetary policy.

Since the 2008 financial crisis, easy monetary policy has been effective at stabilizing economic growth, pushing asset prices higher and fighting off deflation. Yet, despite all of the monetary stimulus, growth remains sub-optimal and inflation below target levels. The BOJ noted last week in its announcement about additional monetary stimulus that fiscal policy and structural reform was needed in addition to monetary policy. I believe this is the case in both the U.S. and Europe as well. The discussion about what needs to be done to drive global growth needs to turn to how can we create structural economic reforms that drive long-term investment.

This week we get a look at July employment data. I will be watching July data closely to see if Brexit has had any impact on the economy.

Tags: Monday Morning O'Malley | Federal Reserve | European Central Bank | Monetary policy | Bank of Japan | Central banks | Reform

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