1. (1 point) The Fed's dual mandate involves balancing act, or tradeoff, between price stability and employment. Which sentence in the article best explains the tradeoff inherent in the Fed's dual mandate? You may copy and paste the sentence as your answer. [1 sentence]

2. (1 point) A line from the article states: "For as long as central banks remain determined to bring inflation down to their targets, any sign of economic strength seems likely to trigger a policy response intended to snuff it out." Explain what the "policy response" being referred to here is. [1 sentence]

3. (2 points) Explain, as clearly and concisely as possible, why the world economy doing well is bad news for central bankers, as the article's title indicates. [no more than 4 sentences]

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. https://www.wsj.com/articles/the-world-economy-is-doing-wellthis-is-bad-news-for-central-bankers-8beeb7c ECONOMY The World Economy Is Doing Well-This Is Bad News for Central Bankers Surprising signs of economic vitality from the U.S. to China and Europe are complicating the fight to bring down high inflation Americans' spending and income surged in January, according to the Commerce Department. PHOTO: RICHARD B. LEVINE/ZUMA PRESS By PaulHannon , Harriet Torry and Stella Yifan Xie Updated March 3, 2023 6:28 am ET The global economy is showing vigor, with business surveys this week pointing to a widespread revival in growth despite rising borrowing costs and elevated energy and food prices, a sign that central banks may need longer than anticipated to bring inflation under control. Data from the U.S., China and Europe have shown surprising vitality in these regions' economies since the start of 2023, confounding predictions from the World Bank and other economists that the global economy was set for one of its weakest years in recent decades. While this is promising for governments, that resilience may persuade central bankers that they need to raise key interest rates further than anticipated to cool prices-effectively pouring more cold water on an economy that is still running a little too hot. This could translate into a slowdown in growth later in the year and into 2024, which had been seen as a The ditching of strict pandemic curbs in China will mostly benefit consumption, potentially a recovery year. boon for countries like Thailand that are popular among Chinese tourists, according to Trinh Nguyen, senior economist at Natixis in Hong Kong. A key indicator for central banks is the jobs market, which remains tight in many parts of the world. Policy makers have been scrutinizing labor market data for hints of rising However, outbound flights from China remain limited and the positive impact from spending unemployment, a drop in hours worked, or a slowdown in wage rises-all of which could help among Chinese tourists likely won't be obvious until the second half of this year. cool demand and ease upward price pressure but remain elusive. "China's recovery is good for itself and particular sectors, but it isn't good for everyone in the "We've seen central banks raise rates," said Madhavi Bokil, an economist at Moody's Investors rest of the region," said Ms. Nguyen. "It is not the tide that lifts all boats." Service. "The hope is that with a few more rate rises that will be enough. If it isn't, we could see them raising rates even further." The most recent signs that growth has been stronger than was expected at the turn of the year came in recent factory surveys around the world from S\&P Global. In February, these showed the first rise in global manufacturing output in seven months, aided by a jump in China after authorities lifted stringent Covid restrictions. Similar surveys of service providers around the world point to an acceleration in growth, including in China and Europe. Inflation rates are also proving stickier than expected. In the U.S., inflation firmed and Americans' spending and income surged in January, according PHOTO: QILAI SHEN/BLOOMBERG NEWS to the Commerce Department. The Fed's preferred inflation gauge-the personal- consumption expenditures price index-rose 5.4\% in January from a year earlier, while U.S. There are also doubts about how resilient growth in the U.S. and Europe is likely to be. After consumers' spending jumped a seasonally adjusted 1.8% in January from December, the all, interest rates have already risen very sharply by the standards of recent decades, and it largest increase in nearly two years. Wages and salaries grew 0.9% in January, more than can take time for the full impact to be felt. twice as fast as in the prior month. "It simply takes months before tighter monetary policy finds its way into the real economy," Europe has also started the year with a burst of energy, and seems unlikely to slide into the said Carsten Brzeski, ING Bank's chief economist. "And it will. Or put differently, if the recession forecast by many when energy prices surged in the months following Russia's greatest monetary policy turnaround in years does not leave any marks on the real economy, invasion of Ukraine. The cost of that health: Data out Thursday showed the core rate of we could also close all central banks." inflation-which excludes oil and food-hit a record high in February. An alternative explanation for such surprising resilience in the face of what appear to be China's revival has helped boost factory production in other parts of Asia. But economists are aggressive central bank moves is that interest rates only gain traction at a certain level. cautious, in part because of uncertainties as to how much-and how soon-China's reopening Mark Dowding, chief investment officer at RBC BlueBay Asset Management, suggested rates will benefit the rest of the region. might "need to move above a threshold such as 2% before they start to have any effect whatsoever." "If that were the case, then we could suggest that the U.S. hiking cycle only really started six months ago and in Europe, it is only just getting under way," he added. The strength of the U.S. economy could prompt the Federal Reserve to raise interest rates higher than previously anticipated this year to cool price pressures. The same holds for the European Central Bank: Following the jump in eurozone core inflation, economists at Barclays raised their forecast for the central bank's key interest rate, and now expect it to reach a record high over coming months. For as long as central banks remain determined to bring inflation down to their targets, any sign of economic strength seems likely to trigger a policy response intended to snuff it out. So while Moody's on Tuesday raised its growth forecasts for the U.S. and Europe, it still expects a slowdown this year, to 0.9% and 0.5%, respectively. The fallout of further monetary policy tightening won't be limited to those regions. It is likely to hit developing economies, some of which-notably Brazil-raised their key interest rates earlier and have seen inflation cool since. When the U.S. central bank raises rates, emerging markets' borrowing costs often rise, their currencies fall and their exports weaken. "For central banks, the only message from the recent acceleration in growth and inflation can be that their tightening thus far hasn't sufficed," said Christian Keller, chief economist at Barclays. "Will economies' current refusal to land ultimately have to end in delayed recessions in 2024?" This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. https://www.wsj.com/articles/the-world-economy-is-doing-wellthis-is-bad-news-for-central-bankers-8beeb7c ECONOMY The World Economy Is Doing Well-This Is Bad News for Central Bankers Surprising signs of economic vitality from the U.S. to China and Europe are complicating the fight to bring down high inflation Americans' spending and income surged in January, according to the Commerce Department. PHOTO: RICHARD B. LEVINE/ZUMA PRESS By PaulHannon , Harriet Torry and Stella Yifan Xie Updated March 3, 2023 6:28 am ET The global economy is showing vigor, with business surveys this week pointing to a widespread revival in growth despite rising borrowing costs and elevated energy and food prices, a sign that central banks may need longer than anticipated to bring inflation under control. Data from the U.S., China and Europe have shown surprising vitality in these regions' economies since the start of 2023, confounding predictions from the World Bank and other economists that the global economy was set for one of its weakest years in recent decades. While this is promising for governments, that resilience may persuade central bankers that they need to raise key interest rates further than anticipated to cool prices-effectively pouring more cold water on an economy that is still running a little too hot. This could translate into a slowdown in growth later in the year and into 2024, which had been seen as a The ditching of strict pandemic curbs in China will mostly benefit consumption, potentially a recovery year. boon for countries like Thailand that are popular among Chinese tourists, according to Trinh Nguyen, senior economist at Natixis in Hong Kong. A key indicator for central banks is the jobs market, which remains tight in many parts of the world. Policy makers have been scrutinizing labor market data for hints of rising However, outbound flights from China remain limited and the positive impact from spending unemployment, a drop in hours worked, or a slowdown in wage rises-all of which could help among Chinese tourists likely won't be obvious until the second half of this year. cool demand and ease upward price pressure but remain elusive. "China's recovery is good for itself and particular sectors, but it isn't good for everyone in the "We've seen central banks raise rates," said Madhavi Bokil, an economist at Moody's Investors rest of the region," said Ms. Nguyen. "It is not the tide that lifts all boats." Service. "The hope is that with a few more rate rises that will be enough. If it isn't, we could see them raising rates even further." The most recent signs that growth has been stronger than was expected at the turn of the year came in recent factory surveys around the world from S\&P Global. In February, these showed the first rise in global manufacturing output in seven months, aided by a jump in China after authorities lifted stringent Covid restrictions. Similar surveys of service providers around the world point to an acceleration in growth, including in China and Europe. Inflation rates are also proving stickier than expected. In the U.S., inflation firmed and Americans' spending and income surged in January, according PHOTO: QILAI SHEN/BLOOMBERG NEWS to the Commerce Department. The Fed's preferred inflation gauge-the personal- consumption expenditures price index-rose 5.4\% in January from a year earlier, while U.S. There are also doubts about how resilient growth in the U.S. and Europe is likely to be. After consumers' spending jumped a seasonally adjusted 1.8% in January from December, the all, interest rates have already risen very sharply by the standards of recent decades, and it largest increase in nearly two years. Wages and salaries grew 0.9% in January, more than can take time for the full impact to be felt. twice as fast as in the prior month. "It simply takes months before tighter monetary policy finds its way into the real economy," Europe has also started the year with a burst of energy, and seems unlikely to slide into the said Carsten Brzeski, ING Bank's chief economist. "And it will. Or put differently, if the recession forecast by many when energy prices surged in the months following Russia's greatest monetary policy turnaround in years does not leave any marks on the real economy, invasion of Ukraine. The cost of that health: Data out Thursday showed the core rate of we could also close all central banks." inflation-which excludes oil and food-hit a record high in February. An alternative explanation for such surprising resilience in the face of what appear to be China's revival has helped boost factory production in other parts of Asia. But economists are aggressive central bank moves is that interest rates only gain traction at a certain level. cautious, in part because of uncertainties as to how much-and how soon-China's reopening Mark Dowding, chief investment officer at RBC BlueBay Asset Management, suggested rates will benefit the rest of the region. might "need to move above a threshold such as 2% before they start to have any effect whatsoever." "If that were the case, then we could suggest that the U.S. hiking cycle only really started six months ago and in Europe, it is only just getting under way," he added. The strength of the U.S. economy could prompt the Federal Reserve to raise interest rates higher than previously anticipated this year to cool price pressures. The same holds for the European Central Bank: Following the jump in eurozone core inflation, economists at Barclays raised their forecast for the central bank's key interest rate, and now expect it to reach a record high over coming months. For as long as central banks remain determined to bring inflation down to their targets, any sign of economic strength seems likely to trigger a policy response intended to snuff it out. So while Moody's on Tuesday raised its growth forecasts for the U.S. and Europe, it still expects a slowdown this year, to 0.9% and 0.5%, respectively. The fallout of further monetary policy tightening won't be limited to those regions. It is likely to hit developing economies, some of which-notably Brazil-raised their key interest rates earlier and have seen inflation cool since. When the U.S. central bank raises rates, emerging markets' borrowing costs often rise, their currencies fall and their exports weaken. "For central banks, the only message from the recent acceleration in growth and inflation can be that their tightening thus far hasn't sufficed," said Christian Keller, chief economist at Barclays. "Will economies' current refusal to land ultimately have to end in delayed recessions in 2024