The Fed: Watchful Waiting This Year, Tough Choices Next Year

In my August UCLA Economic Letter, I discuss the Fed’s interest-rate policy under Chair Janet Yellen.

Since the onset of the financial crisis in 2007, the Fed has taken extraordinary steps to support the economy and financial markets. Seven years later, a gradual return to more normal policy is now in sight. Barring a setback to the economy, the Fed has announced it will end the expansion of its balance sheet in October. The Fed also has been actively planning for the day when it will lift the federal funds rate from its current level near zero, where it has sat for almost six years.

The central question facing the Fed is when that “lift-off” will occur and how quickly rates will rise thereafter. Read more...