Economics
Another Reason to Worry About Fed Ammunition: Eco Research Wrap
- Fixed-rate mortgages will mute an important policy channel
- Central bank already coping with low neutral rates, zero-bound
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The Federal Reserve is presiding over a solid economy right now. That’s good news, because it’s short on tools to deal with a downturn.
The central bank’s balance sheet remains swollen after years of quantitative easing and interest rates are nowhere near the levels they’ve reached in previous expansions, while fiscal policy is boosting the government’s debt load and potentially leaving less political will for future stimulus packages. As if that weren’t enough, new research suggests that rate cuts might work less effectively after a long period near zero.