Economic performance continues to improve and move toward normal, while the Fed’s monetary policy is far from normal. The economy is in its fifth year of expansion, the unemployment rate has fallen faster than projected, and the financial crisis is becoming more distant. The rationale for the Fed’s forward guidance aimed at artificially suppressing real rates for years to come is dissipating. The Fed has been slow to acknowledge this.
Even with the Fed’s relatively hawkish Policy Statement following this week’s meeting and the FOMC members’ updated forecasts that moved up their assessments of when it would be appropriate for the Fed to hike rates, monetary policy remains far too stimulative. The Fed seems to have lost sight of what normal monetary policy should be, and is ignoring the historic pitfalls of excessive focus on short-term conditions and monetary fine-tuning.
READ FULL ARTICLE HERE