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Fed Ponders Catchup With Economic Theory Signaling Rates Too Low
When does treading carefully lead to falling behind? Federal Reserve officials signaled last week that they expect to raise interest rates twice this year, while investors see only one move. If economic theory is any guide, even the central bank’s more hawkish outlook would still leave the target for the benchmark policy rate way too low. That’s going by a policy rule named after Stanford University economist John Taylor that plugs inflation, output and other data into an equation to calculate the right level of interest. Some lawmakers want to make such a rule binding on the central bank. The gap between theory ... (full story)