Fed Policy Is to Keep Hiking Until Something Breaks
The central bank is not inclined to take a leap of faith and pause to assess the impact of past rate increases.
Will the Fed stop before it’s too late?
Photographer: Chris Hondros/Getty Images North AmericaFederal Reserve Chairman Jerome Powell took to the podium at the annual Jackson Hole monetary conference, delivering a message of support for the central bank’s policy of ongoing gradual interest-rate increases. This policy stance is less about commitment to estimates of key policy variables such as the natural rate of interest and more about data dependence. Unfortunately, Powell left the unsettling feeling that monetary policy can be summarized as “We plan to keep hiking until something breaks.”
Central bankers center policy on the economic outcomes thought to occur in stable equilibriums. Currently, unemployment and policy interest rates are both below their natural values, while output growth exceeds potential growth.