The Fed: Between A Rock And Hard Place

Written by Staff Writer

stuck between a rock and a hard placeThe Fed's Between The Rock And The Hard Place -Capital Speculator
"The Fed finds itself in a dilemma with no precedent in modern times. After cutting interest rates to nearly zero for years after the Great Recession, the central bank has managed a degree of normalization lately by lifting rates. But the tide seems to have turned this summer as the Fed target rate was cut in the face of softer economic data.

Federal Reserve Chairman Jerome Powell called it a 'mid-cycle adjustment,' but the change was widely seen as the first of several reductions to counter a downshifting economy....The current target rate is 2.0%-2.25%, leaving little room to fight the next recession using the standard policy tool: reducing the price of money. If an economic downturn started today, the current Fed funds rate would rank as the lowest in the post-World War II era at the start of a recession....If negative interest rates are destiny for the US, a growing chorus of analysts are warning that the trend is doomed to failure as a stimulus effort for the economy. Sub-zero rates also threaten the stability of the banking industry, as Europe has come to learn with its grand experiment with negative terrain....The growing calls for the Fed to give up its monetary experiment and forgo new stimulus may be compelling on paper, but it's hard to imagine that the central bank will stand pat, much less tighten policy, if the economy is slipping into a recession. Indeed, political pressure on the Fed is growing, courtesy of President Trump’s continuing calls for rate cuts. Damned if you do, damned if you don't. It seems that central bank policy has run out of road. Ill-informed or not, the Fed will likely continue to cut rates and perhaps ease into more QE."