Sentiment and the Real Economy

Tom Barkin

Speech from Federal Reserve Bank of Richmond

Abstract: I believe our economy’s performance is driven in important ways by sentiment, that is, the outlook and beliefs of consumers and businesses. At the end of 2018, considerable uncertainty led to large drops in sentiment. We then saw weak numbers in January and February. By the end of February, uncertainty had decreased, and now the data look quite strong. In my view, sentiment has become both more important and more volatile. The result is an asymmetry in which firms are much more cautious about the downside than they are optimistic about the upside. Both consumers and firms may have a higher bar for spending and investment decisions. For monetary policymakers, we need to recognize communication as a monetary policy transmission channel, acknowledging that this channel adds value to nontraditional measures such as quantitative easing. Overall, I still see an economy that is sound. But confidence—especially business confidence—is fragile. It’s our job as policymakers to try to support it.

Keywords: production and investment; household and consumer finance (search for similar items in EconPapers)
Date: 2019-05-15
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Persistent link: https://EconPapers.repec.org/RePEc:fip:r00034:101355

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