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Fed Leaves Rates and Doubts Unchanged

By Noah Smith, Bloomberg - September 18, 2015

The Federal Reserve has chosen to leave interest rates unchanged, effectively at zero. What does this mean? First and foremost, it means that we are unlikely to see any big or significant changes in monetary policy in the near future.

The Fed’s interest rate itself isn't that important -- a quarter-percentage point or a half-percentage point basically doesn’t alter the financial and business calculations of banks, companies or the federal government. Far, far more important is the Fed’s “regime” -- the decision-making process by which the the central bank sets interest rates in response to inflation, unemployment and other conditions. The effect of monetary policy depends on people’s expectations of how the Fed will behave in the future, so people are really watching for any hint of a “regime shift” or deep attitudinal change. Has the Fed become more hawkish toward inflation? Has it started to worry about financial stability? Does it believe that quantitative easing really boosts the economy?

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