Don’t Expect the Fed to Do It All
If its worst fears about the economy prove justified, monetary policy won’t be the answer.
Powell has a lot to contend with.
Photographer: Andrew Harrer/Bloomberg
Financial markets are expecting the Federal Reserve to cut its policy interest rate on Wednesday by at least a quarter point. In the past several weeks, the Fed has signaled this change so strongly that a failure to act would come as a jolt. Although the central bank’s immediate intentions may be clear, however, its reasoning is less so.
In a way, that’s inevitable. The Fed is grappling with unusually great uncertainty about where the economy stands. With interest rates already very low, its options are limited. And it has to contend with an unprecedented lack of economic-policy cooperation from Congress and the White House. Under these conditions, its job is next to impossible.