Expect Fed to Hold Rates Steady While Big Ideas Swirl Outside
- Fed counts on existing tools as economists say more are needed
- Unusually low rates in record expansion limit policy space
The Marriner S. Eccles Federal Reserve building in Washington, D.C., U.S..
Photographer: Andrew Harrer/BloombergExplore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Apple Podcast, Spotify or Pocket Cast.
Inside the Fed, it’s steady-as-she-goes. Investors see this week’s meeting as an easy call, with officials set to vote for leaving their policy rate unchanged for now.
Outside, the conversation is quite different. Former policy makers and veteran Fed-watchers are increasingly preoccupied with what the central bank will be able to do, and the tools it will need, when the next downturn arrives.
The debate keeps throwing up bold new ideas -- from direct cash injections, to a digital dollar, to explicit coordination between central bankers and the politicians who control budgets, an idea floated by JPMorgan Chase & Co. chief Jamie Dimon in Davos last week. And the Fed is in fact halfway through a review of tools and communications, a discussion that may feature prominently at the Jan. 28-29 meeting.
But that exercise isn’t likely to deliver the kind of radical innovation that Dimon and others have sketched. Fed Chairman Jerome Powell and his colleagues are indicating that any changes will be marginal. The 2% inflation target is sacrosanct, talk about fiscal-monetary cooperation is off-limits and Fed policy makers are unimpressed by Europe’s experiment with negative interest rates.