Hoover Daily Report

The Fed Missed Its Chance. Now What?

via Wall Street Journal
Thursday, July 21, 2016
Interest Rates
Image credit: 
yienkeat, Shutterstock
The Federal Reserve is in a tough spot. When the central bank’s policy makers meet next week, many observers expect them to leave interest rates untouched, perhaps citing the shock of Britain’s vote to leave the European Union.
The difficulty is that many indicators, particularly from the labor market, suggest that the U.S. economy is peaking and that the recovery from the Great Recession is nearly complete. This is bad news—and not only because the summit is too low. It also means the Fed has blown it. Still, interest-rate increases are overdue. If this is the peak of a business cycle, or close to it, rates should have gone up long ago. The Fed has already waited too long to move back to a more normal posture, one that would permit aggressive monetary policy when it is next needed. Now the Fed’s position must be better late than never—hoping that the costs of poor timing will be small.
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