But he said the central bank shouldn’t rush any response and instead should take a “wait and see” approach so it can better judge the impact of whatever measures the president-elect and the Republican-led Congress look set to agree on.
“There’s a difference between policy actions that are likely to lead to overheating -- an underfunded infrastructure bill comes to mind -- versus policy changes that affect the supply side and productivity,” Hubbard said. “We don’t know yet which” it will be.
San Francisco Fed President John Williams said the economy doesn’t need a short-term fiscal boost now because it is at full employment and inflation is approaching the central bank’s 2 percent target, according to a newspaper article published Monday. "What we need is really better policies and investments in the long-term health of the economy," the Financial Times quoted him as saying in an interview Friday.
Hubbard, who is dean of Columbia University’s Graduate School of Business, reckons that Trump’s budget and deregulation plans could lift annual economic growth to 2.75 percent in coming years, from about 2.1 percent during the expansion that began in 2009.
A QuickTake explainer on the Fed’s interest rate policy
Other policies not yet articulated would be needed to boost it higher, according to Hubbard. Trump himself has said he wants to raise growth to 3.5 percent annually.
Hubbard cautioned the incoming administration against making “aggressive” assumptions in its budget about the economic impact of its tax reforms that don’t take account of the Fed’s likely response to them.
Warsh’s Views
Speaking at a different economic association panel on Friday, Warsh, a former Fed governor and Bush economic adviser, said that the composition of the eventual fiscal measures would be more important than their size in assessing their impact.
He was skeptical, though, that the Fed’s computer modeling of the economy was up to the task of making that analysis.