The Fed Needs to Do More Than Just Head Off a Recession
It’s part of the bank’s mandate to ensure that as many Americans as possible have jobs.
Keep the focus on the mandate.
Photographer: Alex Wong/Getty Images North AmericaThe Federal Reserve is widely expected to reduce interest rates when it meets this afternoon. Chairman Jerome Powell has been explicit that the U.S. economy is “in a good place,” and undoubtedly sees three cuts in one year (the Fed cut rates in August and September) as sufficient insurance against a recession.
But avoiding recession is too low of a bar. The Fed made a major mistake by prematurely raising rates in 2018, and it shouldn’t risk compounding that mistake by prematurely ending its efforts to lower them now. The Fed’s dual mandate is to achieve maximum employment and stable prices. There is little to indicate that the U.S. is at full employment, and market-based measures of inflation expectations are falling.