The Fed Should Say It’s Ready to Rethink
When the facts change, even central banks should be willing to change their minds.
New information.
Photographer: Gabriela Bhaskar/Bloomberg
The Federal Reserve had little choice last year but to promise pedal-to-the-metal monetary accommodation for the foreseeable future. This unequivocal commitment was the only instrument it had left to provide what was then a necessary stimulus. Now, awkward as it might be — not least for its own credibility with investors — the Fed needs to start walking this promise back.
Today’s monetary-policy settings aren’t necessarily wrong. Interest rates close to zero and hefty monthly bond purchases might very well be the correct posture for the Fed right now. Yet new economic data has underlined the risks in the outlook. The Fed needs to show it’s watching these uncertainties with an open mind, rather than telling markets, as it has of late, “Nothing to see here, move along.”