Janet Yellen’s Solomonic Problem Solved

Thursday is D-Day.
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Tough one....

The surest of sure things is no sure thing anymore. Which I suppose is only natural, what with the near-collapse of the world’s second-largest economy and its attendant aftershocks elsewhere, notably the New York Stock Exchange. This has Janet Yellen in something of a bind when she and her capos head into the meeting room on Wednesday. What will she say when she emerges? It’s an even proposition, according to some people who should know.

About 46% of respondents to the latest Journal survey of 64 economists—not all of whom answered every question—expected the Fed’s first rate increase would come at the two-day policy meeting that concludes Thursday.

While more picked September than any other date, a majority predicted liftoff would arrive at a later meeting.

But those concerns are misplaced, for The Wall Street Journal has already divined the answer: Make 0.25% the new 0%.

Get it over with and raise rates by a quarter point. But within its postmeeting statement commit to hold off on further increases until inflation is picking up, and underscore that with a move lower in interest-rate projections for the end of next year. In June, these centered on a range of 1.5% to 1.75%.

Such a move would help limit any bad response by markets. And given the backdrop of ultralow inflation, it would probably reflect where policy is heading anyhow.

Most Private Economists Think Fed Will Keep Interest Rates Near Zero [WSJ]
Here’s a Way Yellen Can Raise Rates Without Spooking Markets [WSJ]

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