Fed seeks exit from ‘new normal’ economy
By Barry Wood
WASHINGTON (MarketWatch) — The commitment by the Federal Reserve last week to hold its short-term interest rate at the current near-zero level for two years was a bold move.
Knowing the Fed’s aversion to setting specific time frames, former central bank official Joseph Gagnon says he nearly fell off his chair when reading the statement. “I thought it must have been a typo,” says Gagnon, now an analyst at Washington’s Peterson Institute for International Economics.
There are two main messages from the Aug. 9 move. First is the sobering but honest assessment that the economy is weaker than thought only six weeks earlier. The Fed’s forecast of 3% second-half growth has been thrown out the window and a new assessment is being prepared. Secondly, with more fiscal stimulus unavailable, by committing to two years before short-term rates rise, the Fed is pushing harder on its own stimulus pedal to revive the weak economy, especially the long-depressed housing sector. (more.. entire article)
