The weakened Fed

WASHINGTON, DC: These are worrying days for the Federal Reserve, America’s central bank. Surrounded by critics on the left and right, it can hardly do anything without being second-guessed or denounced. Last week, the Fed decided not to raise its target “fed funds” rate, a move that was praised by some economists but was greeted by steep drops in stock prices. This captures the Fed’s precarious position: supported by some, scorned by others.

Over the past decade, there’s been a profound shift in its public standing. Before the 2008-09 financial crisis, the Fed enjoyed enormous prestige and freedom of action. All the Fed had to do, it seemed, was tweak short-term interest rates to keep expansions long and recessions short. What’s clear now is that we vastly exaggerated the Fed’s powers of economic management.