It will be instructive to compare this Wednesday’s policy announcements from the Federal Reserve with the gradual tapering and forward policy guidance many analysts and commentators forecast just a few weeks ago. I suspect the US central bank will appear to be stuck with the same mix of policy tools even though growth outcomes have consistently fallen short of their expectations. And while recent congressional dysfunction has reduced its room for manoeuvre in the short term, there are deeper forces at play that blunt America’s job recovery, with implications that extend well beyond the Fed.
At the conclusion of their two-day policy meeting, Fed officials are likely to announce few if any changes to the big three components of their current policy stance: floored policy rates will not be touched; forward guidance language will not evolve much; and balance sheet purchases will remain as is, at $85bn a month (also with no change in composition). Read more