Challenges Ahead for the Fed After Its Rate Hike

Bloomberg Editorial Board: The Federal Reserve’s rate hike announcement “may be the most widely anticipated news in the history of U.S. monetary policy… This new course won’t be easy. U.S. economic policy faces three big tests over the coming months.”

“First, the Fed has to make sure interest rates rise without incident, and that task is far from straightforward. The Fed will be trying to normalize monetary policy in conditions that are anything but normal.”

“Second, the Fed must guide investors on what to expect next. This poses difficulties, too. The Fed needs to insist — and keep insisting — that there’s no fixed schedule for further rate increases, that data not dates will drive policy and that rates can go back down if need be.”

“The third challenge is not for the Fed but for Washington’s other policy makers … The Fed cannot carry the whole burden of macroeconomic policy, least of all under current conditions. The recovery is far from robust; despite the fall in headline unemployment, there’s little sign of wage or price inflation. It would be foolish to rule out new economic setbacks.”

“What else is there? The answer is fiscal policy … Yet in its protracted negotiations over spending measures and its endless back-and-forth on tax policy, Congress never so much as considers the macroeconomic dimension.”

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