Federal Reserve Presidents take two approaches when discussing the economy. The most common only mentions employment and inflation followed by a discussion relating both to the Fed’s dual mandate. There is nothing inherently wrong with this approach. It benefits from being simple while also demonstrating that the President making the presentation is considering economic events relative to the Fed’s dual mandate. But simplicity is also its primary drawback. The US economy is a complex entity; only referring to two statistics does not provide adequate depth to meaningfully explain a president’s analysis. 

A second group of presidents (Brainard, Evans and Rosengren) offers far more nuanced analysis in their speeches. Boston President Rosengren spoke earlier this week. Like most presidents, he begins by mentioning labor markets have improved and inflation remains contained:

Turning to the national economy, in December the FOMC raised short-term rates for the first time since the financial crisis, by a quarter of a point. That decision reflected further improvement in a range of recent labor market indicators, confirming that underutilization of labor resources has diminished – and the Committee’s expectation that inflation will return to 2 percent, the inflation target set by the Federal Reserve, over the medium term. 

But he then notes:

While labor markets have continued to improve gradually, headwinds generated from abroad have created more volatile financial markets and concerns that U.S. domestic growth may be impeded by these headwinds and inflation may not move as quickly to the inflation target.

Fed Presidents who focus exclusively on domestic demand assume the US economy can generate sufficient domestic growth to be self-sustaining. And, at $17.4 trillion, they have a solid point. But foreign developments have risen in importance and impact as economies have become more inter-connected. This is a key point addressed in Rosengren’s speech.