Central banking is “in a brave new world,” said a Fed representative as the institution considers both old and radical new tools to drive the US economy in the coming decades.
Also read: Can the Federal Reserve Really Save the US Economy?
Conditions Right for a Fed Hike
In the Federal Reserve’s potential toolkit is a much-anticipated interest rate hike, the first for 2016 – but also newly-mooted strategies like raising inflation targets or even buying private corporate debt alongside its government bond holdings.
A solid US labor market set the conditions for an interest rate increase as early as next month if the economy continues to strengthen, said Federal Reserve Chair Janet Yellen.
The statements come as the Fed meets for its annual symposium in Jackson Hole, Wyoming, where it traditionally takes an overview of the US economy’s current state and discusses policy initiatives to spur or manage growth.
Rate Hikes a Sign of Confidence
An interest rate hike, even if small, is seen as a sign of confidence the economy will grow. Increasing borrowing costs signals the Fed would like to see economic activity cool slightly while dropping rates to ever-lower levels is seen as desperate measures.