Waiting until September unnecessarily increases the risk of a recession. I’ve long been in the “higher for longer” camp, insisting that the US Federal Reserve must hold short-term interest rates at the current level or higher to get inflation under control. The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at ...

Don’t fret about the immediate effect on money markets. Do fear that the bond vigilantes will reawaken. The US government’s finances keep looking worse. The latest Congressional Budget Office projections suggest that it will need to borrow an added $400 billion this year to cover its budget deficit — and trillions more over the next ...

Even at more than 5.25%, the central bank’s short-term interest-rate target might not be high enough to cool the economy. To a large and under-appreciated extent, the job of the US Federal Reserve entails chasing an elusive number: r*, or the neutral short-term interest rate. When the Fed’s target rate is above r*, it should restrict growth. ...

The total bill could exceed $500 billion. A proper evaluation should make the next one less expensive. America’s experiment with quantitative easing is almost over. This week, the Federal Reserve will likely announce plans to slow the shrinkage of its balance sheet, foreboding the end of a long period in which it sought to stimulate the economy ...

This time around, the market has it right. The federal funds rate will probably stay a lot higher than what officials are projecting.Financial markets and the US Federal Reserve remain in disagreement on a subject crucial to asset prices and economic growth: how low interest rates will eventually go. Betting against the Fed is a fraught ...

Regulators have yet to address the system’s vulnerability to sudden depositor withdrawals. Ever since the demise of Silicon Valley Bank in March 2023, regulators have been focused primarily on increasing loss-absorbing capital at the largest US financial institutions. Much less attention has been paid to the problem that precipitated last ...

Defeating inflation without crashing the economy is still a challenge. Financial markets have lately been intensely focused on the US Federal Reserve’s next moves: How soon will it start cutting interest rates, and how low will it take them this year? That’s really hard to answer, but I can offer some insight into what will drive the ...

This time around, quantitative tightening needn’t destabilize money markets. The US Federal Reserve faces a monetary-policy challenge above and beyond determining the right level of short-term interest rates: how much and how quickly to reduce the more than $7 trillion in securities still on its balance sheet — holdings it amassed in ...

There’s a better way to ensure lenders can always pay their depositors. Almost a year ago, America experienced a frightening financial shock: a run on banks, in which depositors raced to pull money out of institutions that they feared were about to collapse. Such events can and should be a thing of the past, but this will require ...

Almost a year after Silicon Valley Bank's failure, the Federal Reserve is still keeping the public in the dark about the deficiencies it finds at US lenders. The US has yet to fully address one of the greatest weaknesses revealed by last year’s failure of Silicon Valley Bank and other regional lenders: Supervisors saw the problems, but they ...

The US Federal Reserve has bet its reputation on a soft landing. Here’s hoping it works out. The US Federal Reserve and its chair, Jerome Powell, are betting that they can have the best of both worlds — that they’ll be able to defeat excessive inflation without forcing the economy into recession. I hope it goes well. Unfortunately, there’s still ...

Central bank digital currencies can make the financial system more useful for more people. But the US Federal Reserve needs to get involved. When the crypto bubble was on the rise, it prompted governments to step up development of their own form of electronic cash, known as central bank digital currencies. Now that enthusiasm for crypto has ...

Broader financial conditions matter for the economic outlook. The Fed is right to focus on them. Lately, Federal Reserve officials have been paying greater attention to financial conditions – that is, to the influence that market phenomena such as stock prices, bond yields and housing prices have on economic activity, above and beyond the ...

The upward pressure on long-term interest rates from QT will persist until late 2025. The US Federal Reserve’s efforts to quell inflation have sent long-term interest rates to their highest level in a generation, putting a lot of stress on banks, companies and anyone looking to finance a new home. How long will this go on? Judging from the ...

Five things to watch in the Summary of Economic Projections. Can the Federal Reserve engineer a soft landing, in which it defeats excessive inflation without tipping the US economy into recession? This week, Fed officials will offer important clues as to whether that’s achievable.The Sept. 19-20 meeting of the policy-making Federal Open ...

US regulators want to boost capital requirements for the biggest banks by nearly 20%. There are better ways to make the financial system more resilient. US banking regulators are back to their old tricks. In the wake of a crisis — this time the March demise of a handful of regional banks — they want banks to fund themselves with ...

The paradigm has shifted. Higher yields are back. Who knew that the subject of US Treasury bond yields could inspire such passion? When, in late June, I argued that they were likely to move considerably higher than the then-prevailing 3.75%, I attracted some vehement pushback. In a publication titled “Don’t Be a Dud,” analysts at Morgan ...

Unless 3.6% unemployment is the new normal, the central bank has more tightening to do. After a string of encouraging data, markets are displaying increasing optimism that the Federal Reserve might be done with its battle against inflation – and that the US will experience a rare "soft landing," in which inflation falls back to 2% and the ...

Sometimes the Fed has to get creative to support the economy. But it must consider the risks, too. Having presided over America's first banking crisis since 2008, Federal Reserve officials are rightly focused on reforming regulation. That said, they should keep in mind some lessons for monetary policy, too. The Fed has promised to complete ...

Lessons for regulators from three weeks of financial mayhem. The banking havoc of the past few weeks has focused attention on regulators: What should they learn, and what should they do about it? I see five lessons, and five prescriptions. First, banking rests on confidence. For uninsured depositors, running at the first sign of trouble is ...

The central bank doesn’t have to sacrifice its monetary policy goals to calm turmoil in the financial sector. The US Federal Reserve is facing increasing pressure to sacrifice its monetary-policy goals for the sake of financial stability, on the grounds that its interest-rate increases are to blame for the turmoil in the banking sector. This is ...

If US officials don’t do something about the government’s fiscal problems, the bond market will. As recently as the early 1990s, America's leaders cared a lot about how bond investors would react to their decisions. James Carville, a political strategist for Bill Clinton, famously said that he'd like to be reincarnated as the bond market, ...

“Money printer go brrrrr” doesn’t describe how Federal Reserve policy actually operates. Internet memes and pundits alike often display a specific understanding of how the US economy works: that the sheer volume of money is the most important determinant of output and prices. Following their logic, the Federal Reserve's pandemic-related ...

A moderate and patient approach to raising interest rates would increase the chances of a soft landing for the US economy. But the central bank might not have that luxury. How will the US Federal Reserve wage its battle with inflation — by keeping interest rates elevated for longer, or by taking them even higher? Investors are fixated on ...

The central bank faces three significant risks in its ongoing battle to get inflation back under control. In some ways, the 2023 economic outlook for the US is locked in. The Federal Reserve's goal is to push the rate of inflation back down to 2% over the next few years. It will do this by keeping monetary policy tight enough for long enough ...

If markets remain optimistic, the central bank will just have to tighten more to achieve its inflation objective. Try as it might, the Federal Reserve can't seem to break the market's relative optimism about the outlook for interest rates. But there's one thing investors need to understand: The central bank has ample power to make its ...