Fed wants to survive the global panic at the stock exchange
Rates of interest are getting low, and already reached zero level in the USA. Of course, it will slow the rates of Federal Reserve Bank too. Policymakers are expecting the miracle from the global markets and some movement of the demand from across the world, to make the economy less weak.
The situation is harder because of the neutral rate. So the hands of policymakers are tied. They don’t know how to react, where to invest and what to invest or maybe just spend. It would be easier if the numbers went positive or negative. So Fed kept quiet for some time, trying to solve the problem inside.
They simply don’t know whether it will be better to restrict or stimulate the national economy.
However, their main policy is still in encouraging spending, hiring, and even investment. And we cannot predict how long it will take till their main stimulus will be gone.
The official estimates of Fed that were published online show the expectations way beyond the real potential of the rate that was almost at the neutral level during a long time.
Officials can provide many potential explanations for the situation, however, there will be only one result. Until the rate will move higher, and policymakers will be happy with it, they still will have less than 2 percent of the rate from federal funds.
If they will receive 2 more percent it will mean only that the rate is finally really at the zero. And the inflation below the target will weaken the Fed as well.