Ask Not What the Fed Will Do, But Whether It Will Work
The central bank is being pressured to solve problems far beyond monetary policy.
So many are looking to Jerome Powell to do so much….
Photographer: Mark Wilson/Getty Images
Pressure is mounting from all sides on the Federal Reserve to cut interest rates: from economists, including some worried about the U.S. slipping into a recession; from market participants hoping for more liquidity to support asset prices; and from the Trump administration complaining that the Fed already has unduly held back economic growth and the stock market.
Given the remarks this week of Fed officials, it seems no longer a question of whether the Fed will cut rates but rather when and by how much. But there is a deeper two-part question that remains unanswered, and it’s much more consequential: Would such cuts even lead to sustainably and substantially higher consumption and investment; and, if not, how long can markets maintain increasingly elevated asset prices that are decoupled from the underlying economic and corporate fundamentals?