The Fed Should Stop Confusing Investors
The central bank has rightly abandoned its earlier “framework” for monetary policy. It needs a new one.
Let me be clear.
Photographer: Al Drago/Bloomberg
The Federal Reserve surprised nobody when it raised its policy rate 75 basis points on Wednesday. Attention had already switched to what happens next. Will the pace of tightening slow from now on? Is the Fed changing its mind about how high rates will need to go? Despite Chairman Jerome Powell’s efforts to address those questions, his answers leave plenty of doubt. And that’s a problem.
To be clear, the Fed’s future interest-rate decisions need to be data-dependent, as Powell insists. If monetary policy is hard to predict merely because the future is uncertain, that’s fine. The trouble is, uncertainty isn’t confined at present to doubts about how the economy will evolve. What’s also unclear is how the Fed will respond to changing conditions.