The Fed's next hike will come at the end of 2014
The central bank risks underestimating the potential for structural shifts in the economy
By Volker Wieland | Goethe University of Frankfurt
Volker Wieland is Professor of Monetary Theory and Policy at Goethe University of Frankfurt since 2000 and a Founding Professor of the Institute for Monetary and Financial Stability. Prior to joining the Frankfurt faculty he was a senior economist at the Federal Reserve Board in Washington, DC.
ON JANUARY 25th, the Federal Open Market Committee decided to keep the federal funds rate at 0% to 0.25% and said that economic conditions are likely to warrant such low levels at least through late 2014. Many observers were surprised by such a long-term commitment to low rates. Interestingly, however, historical estimates of funds-rate reactions to FOMC members' forecasts prescribe just such a response to the forecast published on January 25th.
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