What Color is the Fed’s Parachute?
Chief Economist Vincent Reinhart considers the Fed’s view on long-term growth prospects, interest-rate guidance, and a negative rate.
Market participants fretted after the 2008-09 recession that the Fed would remove its unusual policy stimulus too soon, preventing its effects from reaching longer-lived financial assets. The jerry-rigged solution was to make rate guidance more and more explicit. Chair Powell’s emphasis on the recession and financial crisis’ long shadow underscores that the Fed will remain accommodative for as long as necessary.