Is the Right Move for the Fed a Rate Cut?

February 20, 2019

While the rally in the markets so far this year suggest that the Fed’s more moderate stance regarding interest rates may have stabilized the markets, it may be too little, too late. A new piece from the Economic Cycle Research Institute (ECRI) argues that the Fed’s recent decision making fails to take into account that December’s plunge in the stock market was caused by the cyclical slowdown in growth, and that this slowdown hasn’t yet ended. ECRI also notes that changes to monetary policy have “long and variable lag” in their impact on the economy are unlikely to have much of an impact this year.

Rather than simply adopt an attitude of “do no harm,” ECRI argues that the Fed needs to be more proactive in its attempts to ward off recession and spark economic growth, and that the best way to do so would to begin a cycle of rate cuts. If the Fed maintains its “wait and see” attitude as the economic slowdown continues, and some unforeseen shock triggers a recession, it will be too late for the Fed to do anything meaningful.

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