Fed's Pivot Marks a Major Break
Chairman Jerome Powell is moving the central bank away from models that have failed it and led to December’s policy error.
Federal Reserve Chairman Jerome Powell has a new approach to monetary policy.
Photographer: Bloomberg
The Federal Reserve this week effectively acknowledged that its final interest-rate hike of 2018 was an error. In trying to fix that error, policy makers have quickly shifted gears from forestalling inflationary pressures to supporting inflation and extending the expansion. The implication for market participants is to expect that the next Fed move is much more likely to be down than up.
The December rate increase always seemed more model-driven than reality-based. At the time, the downturn in the financial markets had gone on too long and too deep to be easily ignored while the inflation numbers weren’t strong enough to demand the Fed’s attention.