8.30.20
After the Federal Reserve (Fed) released changes to future Fed policy last Thursday, many economists warn that the economic tools it once had could be less effective in dealing with future economic crises. “The Fed is never going to say the cupboard is bare because that’s alarming. But they’ve reached the area of very rapidly diminishing returns,” said former New York Fed President William Dudley. Those who question the future effectiveness of the Fed’s long-term policy point to the long-term low interest rates, “The Fed is operating at the margins. That needs to be recognized. If it’s not recognized, there is a risk people are overinvested in what the Fed can do,” noted Mr. Dudley. Even some Fed officials recognize that the long-term effectiveness of Fed policy is diminishing leading to the Fed pleading for federal officials to provide more economic support with changes to tax policy or spending. Other economists and industry experts warn that if the Fed does not receive outside help, the Fed could find itself implementing experimental policies that could lead to more financial bubbles or fuel concerns about inequality and current economic conditions.