- April 11, 2022
- Posted by: Stratford Team
- Category: Economy
Forget all the fancy talk about neutral interest rates and output gaps. The two basic questions facing the Federal Reserve are simple to state and complex to answer: is the world’s most powerful central bank finally committed to return monetary policy to serving the real economy rather than financial markets; and can it do so in an orderly fashion?
These questions are yet to be sufficiently grasped by markets, and for good reason. Viewed from their perspective, the risk for the Fed of not following the market’s lead is too costly. Yet, even if they are ultimately correct, markets will very likely find themselves with much less of an influence on monetary policy than in recent times.
The background to the current situation is well known. For too long, monetary policy has been essentially co-opted by markets. The phenomenon started innocently enough with central bankers’ desire to counter the damage that malfunctioning markets inflict on…