Framework complete, Fed faces election year call on next steps

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Framework complete, Fed faces election year call on next steps
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With a new policy framework in place, the Federal Reserve will turn to discussion of its next steps in the fight against the economic fallout of the coronavirus pandemic, and if and when to roll out additional support.

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis

However the debate presents the central bank with an immediate challenge: Whether to announce those widely anticipated next steps at its September policy meeting, its last before the November presidential election, or wait. The Fed in September of 2012 did announce its third and most open-ended program of bond purchases used to fight the last crisis, and was promptly pilloried by Republicans alleging the central bank was trying to fuel a sluggish recovery and help President Barack Obama’s re-election that November.

In addition, with investors already anticipating the Fed will hold its target policy rate near zero for years, there may be little value in making more explicit promises about rate hikes until years down the road, if and when investors think a rate increase is more possible. “As long as we have uncertainty about the trajectory of the pandemic there is only so much our policies are going to be able to do,” he said.

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