Where the Fed Goes From Here

Investors scouring Janet Yellen’s speech last Friday for clues on short-term interest rates came away disappointed. The Fed chair chose to deliver a more important message: The future of U.S. macroeconomic policy cannot be like the past.

Dealing briskly with the immediate future, Yellen made it clear that the Fed’s short-term stance is watchful waiting — just like before the speech. Turning to the main theme of the annual economic policy conference, Yellen addressed a much bigger question.

Mainstream economics has long proposed a basic division of labor between monetary policy and fiscal policy. Interest rates are easy to change, so they’re well-suited to managing the short-term economic cycle; taxes and public spending involve hard choices and far-reaching consequences, so they aren’t. Yellen’s basic point was that this thinking will have to change.


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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.