Did the Fed Shift Policy Lanes at the Wrong Time?
It couldn’t foresee Covid-19 when it switched from a preemptive to a reactive approach. Now it has to be careful not to overcorrect.
Be careful not to get jammed up.
Photographer: Scott Olson/Getty Images
It has probably happened to many of us. Stuck in a traffic jam and fed up with being in the slow lane, we change lanes only to see our previous one suddenly moving. Do we try to shift lanes again or stick with the new one? The correct answer can’t be known for sure until a lot more distance is in the rearview mirror.
This simple analogy captures for me the situation the Federal Reserve finds itself in with its new monetary policy framework. Like the motorist, it will only become clear down the road, if at all, what the world’s most powerful central bank should have done now.