The Fed Is Juggling Stimulus Past and Future
Monetary policy is stuck between the emergency actions of this spring and the rollout of a new strategy and tools this fall.
Federal Reserve Chair Jerome Powell is in monetary policy limbo.
Photographer: Tasos Katopodis/Getty Images
The Federal Reserve is stuck in a monetary policy limbo. Policy makers know they will soon be under pressure to do more to support the economy, but have yet to agree on what “doing more” looks like. That means no policy change at this week’s central bank meeting, but expect a somber assessment of the economic outlook and hints of the policy changes that will come along with the completion of the Fed’s strategy review.
The Fed will engage in two separate but related discussions this week. The first will be part of the ongoing policy and strategy review. Meeting participants continue to debate how to most effectively use the current tools of forward guidance and quantitative easing, and how to build on these tools by tying guidance to economic objectives and implementing yield curve control. In addition, they are considering modifying the inflation target such that policy explicitly requires some overshooting of its 2% target to compensate for past inflation shortfalls. The outcomes of these discussions will be revealed later this year, possibly as early as September.