What Will the Fed do Next?

Bloomberg: “Attention has turned to the likely pattern of increases over the coming months and years: How high will rates rise, and how quickly?”

“The answer, one hopes, is that the Fed doesn’t know — because the policy should depend on how the economy behaves over the coming months, which is itself uncertain … the Fed should keep the emphasis on developments in the economy and dispel any notion of a schedule.”

“Yellen has said the Fed’s [2%] target is just that, not a ceiling  … But the inflation projections bundled with the Fed’s policy announcements don’t appear to back that up.”

“Mixed messages of this kind aren’t helpful. And the signaling of the Fed’s inflation expectations isn’t the only such case. Yellen has often said that interest-rate policy will be ‘data-dependent,’ rather than following a pre-determined schedule. Yet Dennis Lockhart, president of the Atlanta Fed, [stated:] ‘Moving up gradually means not every meeting, in all likelihood … The rate of rising interest rates will be more like every other meeting.'”

“Falling unemployment justified the Fed’s move on Dec. 16. Yet here too the calendar clearly played a role: The Fed had long hinted at a rise by the year’s end, leaving investors almost certain it was coming. From now on, data, not dates, should guide the policy — and comments suggesting anything else would be better left unsaid.”

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