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Fed's "Insurance" Rate Cuts Don’t Eliminate Risks, They Create New Ones
Preemptive policy moves have been a defining feature of monetary policy. In the past policymakers have made preemptive rate adjustments in response to potential inflation pressures, financial market turmoil, and now perceived risks from trade disputes. The paradox in this approach is that taking out "insurance" against a perceived risk shifts monetary policy in a new direction creating the potential for other risks to develop. In the end, it’s hard to prove that the economic outcomes are any different following a series of preemptive policy moves, but what are different are the timing and the imbalances that ... (full story)