Business Cycle Indicators, 24 July 2020

Reverse radical or V-ish (or W?)

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding transfers in Ch.2012$ (green), manufacturing and trade sales in Ch.2012$ (black), and monthly GDP in Ch.2012$ (pink), Bloomberg consensus estimate at 7/24 (blue gray), Goldman Sachs Employment Tracker estimate based on data thru 7/7 (sky blue), all log normalized to 2019M02=0. Source: BLS, Federal Reserve, BEA, via FRED, Macroeconomic Advisers (6/26 release), Bloomberg, Goldman Sachs (7/23/2020), NBER, and author’s calculations.

If We Were to Implement a Gold Price Target, What Should the Fed Funds Rate Be?

Given the Senate Banking Committee’s approval of Judy Shelton’s nomination to the Board of Governors of the Federal Reserve, it seems like a good time to see what stabilizing the price of gold in US dollars would’ve required in terms of the policy rate (akin to how the exchange rate is managed). Using the policy rate to  stabilize the dollar price of gold at February 2020 levels would required the increase of the Fed funds rate by 1.15 percentage points higher than it was at that time.  The Fed actually decreased the Fed funds rate by 1.5 percentage percentage points by June 2020.

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