Monday, February 6, 2017

Economic policies and rate setting is complicated business

As the economy approaches our objectives, it makes sense to gradually reduce the level of monetary policy support.

Right now our foot is still pressing on the gas pedal, though, as I noted, we have eased back a bit. Our foot remains on the pedal in part because we want to make sure the economic expansion remains strong enough to withstand an unexpected shock, given that we don't have much room to cut interest rates.

Figuring out what the neutral interest rate is and setting the right path toward it is not like setting the thermostat in a house. You can't just set the temperature at 68 degrees and walk away.