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What the Fed Chief's Next Message Should Be

In December, Federal Reserve officials indicated that they planned to raise interest rates by a quarter percentage point every three months for the next three years. That framework is already in disarray, leaving investors and the general public guessing about how the Fed plans to manage the economy.

When Chair Janet Yellen speaks later this week at the Kansas City Fed's annual conference in Jackson Hole, she'll have to offer a much more durable and convincing plan.

She could start by repudiating the idea that future interest rate moves will follow any kind of timeline. In a constantly changing economic environment, the Fed cannot promise to act according to a pre-set calendar. Suggesting otherwise has harmed the Fed's credibility in the markets and, no less importantly, with Congress.

The Fed’s practice of releasing official forecasts of rate changes to the public every three months doesn’t help in this regard. Yellen should dismiss any idea that these forecasts have any relevance for the evolution of actual policy.

If not the calendar, then what...


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