The Fed Must Weigh What’s Feasible Versus Desirable
There’s room to increase stimulus, but not at the expense of letting lawmakers off the hook.
Fed Chair Jerome Powell should consider the risks of the easier road.
Photographer: Bloomberg
Reacting to growing indications of a moderating recovery, some economists and Wall Street analysts are pushing the Federal Reserve to provide even more stimulative “forward guidance” at its policy meeting this week. The Fed is easily able to do so, and not only under the auspices of its long-established operating paradigm of data dependency and insurance mindset. Last month’s framework revisions have structurally built in more flexibility by allowing for a higher inflation target in periods such as now.
Yet what is operationally feasible is not so clearly desirable. The more the Fed goes down this road on its own, the greater the risks to economic well-being and its own credibility. Also, the challenges are not limited to domestic problems.