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How the Fed Could Say What It Means
Forward guidance, a technique whereby central banks try to steer the expectations of consumers and investors about where interest rates are headed, isn’t working as well as it might in either the U.S. or the U.K. The solution is pretty simple, and has already been successfully road tested in Norway and Sweden. It turns out that tying the path of monetary policy to fixed parameters such as unemployment rates can swiftly go awry. Both the Federal Reserve and the Bank of England have had to abandon jobless targets; labor-market improvements arrived before their economies have sufficient gusto to weather higher ... (full story)