The Fed’s Best Bet Is Patience as Confusion Reigns
The outlook for economic policy is anybody’s guess. The central bank can’t afford to speculate.
What could possibly go wrong?
Photographer: Andrew Caballero-Reynolds/AFP/Getty Images
A lot has changed since a new administration took charge on Jan. 20, so the Federal Reserve’s decision last week to maintain its policy rate might seem odd. Punitive new tariffs appear to be imminent, which would likely push prices higher, disrupt the economy and hold back growth. Also in the cards: a big fiscal stimulus, as Congress prepares to extend the 2017 tax cuts. Shouldn’t the central bank take a view on all this and adjust monetary policy accordingly?
No, it shouldn’t. At the moment, uncertainty rules. It’s impossible to say what the White House truly intends on tariffs — a short-term threat to extract border-security concessions, a long-term source of new tax revenue, a wall to shut out foreign manufacturers? (Whatever the administration says, logic dictates that it can’t be all three.)