2016 Forecast: The Road to Normal

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In recent years “normalization” has been associated primarily with central bank monetary policy, which remains in the highly accommodative state first entered into as the financial crisis emerged. The U.S. Federal Reserve of late has taken very slow, measured steps to return to more-normal policy and now has hiked the Federal Funds rate for the first time in ten years — even as its global counterparts grow increasingly accommodative in the face of sluggish economic growth and elusive inflation. It is critical that the U.S. is successful in transitioning back to a freer market economy, as its approach ultimately will be replicated by other nations seeking to normalize in the context of what should be a faster growing global economy.

But normal extends beyond the FOMC and its international policy setting analogs. Normal is also about organic, sustainable economic growth. While central banks can help jump-start economies with easy money and asset purchases, it’s up to legislators to foster the conditions that help promote sustainable growth via tax reform, labor market liberalization and reduced regulatory burdens.

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