U.S. household wealth has hit record levels. U.S. stock prices recently hit all-time highs. Inflation is nearing the Federal Reserve's 2.0 % goal, and the world economy including the once-sick Eurozone has skirted the risk of a deep new downturn.
By the middle of next year, Federal Reserve Bank of Boston President Eric Rosengren says he expects unemployment to fall to 4.7% and inflation to beat the Fed's 2% target, leaving policymakers at risk of having to squelch the recovery with faster-than-expected rate increases.
Market volatility is low, U.S. census data shows income gains have reached the middle class, and workers are clawing back a larger share of national income. For now, at least, no international risk stands out and inflation may even be picking up.
Schooled in economic thinking that confines monetary policy to the short run, central bankers gathering in Jackson Hole, Wyoming, are grappling with a singular change: whether they can take over as guardians of long-term growth with programs that may stay in place and influence markets for decades to come.
New regulations have made the financial system safer but have also strengthened the market position of the largest banks and may discourage innovation, St. Louis Fed President James Bullard said on Thursday.
The Federal Reserve's carefully scripted decision to raise interest rates last December, and begin a return to "normal" policy, may now become a nightmare for the U.S. central bank if an economic downturn forces a return to unconventional methods.