Could Fed maneuvers raise questions about its credibility?
*The Wall Street Journal, by Katy Burne, December 15, 2015
”When traders at the Federal Reserve Bank of New York’s Manhattan headquarters get the order to raise interest rates for the first time in nearly a decade, they will be urged on by a plaque down the hall that reads: ‘Execute policy like a champion today.’
Easier said than done. The central bank spent years pumping more than $2.5 trillion into the financial system in hopes of stimulating the economy. Now it risks creating a whole new set of distortions as it tries to pull the cash back out.
Fed officials are expected to vote to raise benchmark short-term interest rates from near zero at the conclusion of their two-day policy meeting Wednesday.
It won’t be like throwing a switch. Instead, the New York Fed’s traders will be swapping securities and cash with big financial institutions, trying to control supply and demand for money in markets already under pressure from new regulations on banks and money-market funds.
A great deal is at stake. Fed tightening traditionally sends up rates on everything from mortgages and car loans to the cost of financing the U.S. deficit. Flubbing the maneuvers could raise questions about the Fed’s credibility.”
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