The Fed's stunning course correction

The smartest insight from around the web on the Federal Reserve's change of plans

Stock traders.
(Image credit: JOHANNES EISELE/AFP/Getty Images)

The smartest insight and analysis, from all perspectives, rounded up from around the web:

A "sharp reversal of the Fed's stance just six weeks ago" sent markets soaring last week when the central bank signaled that its benchmark interest rate would hold steady, said Binyamin Appelbaum at The New York Times. Federal Reserve Chairman Jay Powell caught analysts and investors by surprise with his announcement that "the case for raising rates had weakened." The Fed's many careful observers took this as a sign that after months of indicating it would keep raising interest rates to forestall inflation, the Fed may have reached a plateau. "The Fed's newfound caution is likely to delight President Trump," who has often insisted that the Fed was holding back growth. But the shift left some observers puzzling, and Powell "struggled to explain the Fed's reasoning." He pointed to factors including slowing growth in Europe and China and the federal government shutdown. The Fed's move led the S&P 500 index to its best January finish in 30 years.

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"The Fed is losing credibility by the minute," said Barbara Rockefeller at the FXStreet. "The Fed has spent countless hours working on transparency and communications," and now Powell has blown all that up. Not exactly, said Justin Lahart at The Wall Street Journal — Powell has just shown that the Fed can change direction; don't be too surprised if it reverses itself again. Just two days after the Fed shifted course, the latest unemployment figures showed that the economy " added 304,000 jobs in January — far more than the 170,000 that economists expected." That's awkward for all the people predicting an economic slow-down. "Another couple more months of jobs strength would extinguish any doubt" that the economy is still blazing, and could make the Fed slam the brakes again.

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