Yellen’s rule-based approach to forward guidance is coming

Today’s Commentary
Summary: I believe policy makers at the the Federal Reserve have soured on the marginal effectiveness of quantitative easing as a primary tool for monetary policy. As interest rate policy is still not effective with the policy rate at zero, forward guidance will take on a more central role as the Fed tries to bring interest rate policy back to the fore. If sucessful, the Fed will begin to assert more dominant control over long-term interest rates. 

Historical narrative
When the financial crisis hit in earnest in 2007, the Federal Reserve began slashing the Fed Funds rate drastically. The Fed took the rate from 5.25% in August 2007 to 0% in December 2008, a reduction of 5.25% in 16 months. This was an unprecedented level of monetary easing. Yet, the economy was still...


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