The Fed Puts Monetary Policy on Pause
It should use this interlude for some hard, urgent thinking about the next recession.
Some tough questions need answers.
Photographer: Alex Wong/Getty Images
The Federal Reserve’s latest tweak to monetary policy — a quarter-point cut in its benchmark interest rate plus a strong signal there’ll be no more unless there’s a major change in economic conditions — was much as investors expected. Reaction in financial markets on Wednesday was muted. It would be wrong to conclude from this calm, however, that all is well with U.S. monetary policy.
Two main issues remain unresolved: the Fed’s approach to communicating its intentions, and the depletion of its policy tools should the need for further strong stimulus arise. The next recession is only a matter of time. When it happens, the Fed risks being dangerously ill-prepared.