The Fed’s Job Isn’t Getting Any Easier

The Federal Reserve cut its benchmark interest rate Wednesday by another quarter of a percentage point, to a range of 1.75% to 2%. That much was expected — but little else is going according to plan. A spell of turbulence in the money markets is complicating matters. And the Fed is still wrestling with heightened uncertainty, a lot of it needlessly inflicted on the central bank, and on the economy as a whole, by a reckless and incompetent administration.

Just before Fed Chairman Jerome Powell made his policy announcement, a sudden shortage of liquidity sent the effective fed funds rate above its target range. The Fed dealt with the problem by supplying new reserves — something it can do whenever necessary — but the scale of the disturbance was puzzling, and called into question the central bank’s operating procedures. Among other things, it raised the possibility that the Fed’s plan to shrink its balance sheet, still vastly bigger than it was before the 2008 crash, might tighten liquidity too much and too fast.