The Week Ahead: An Expectation is Not a Promise

Tom Hudsonby Tom Hudson
Co-Anchor & Managing Editor

When does a possibility become a promise?  For three years the Federal Reserve has said it expects the economy to remain so weak it will likely keep interest rates at “exceptionally low levels…for an extended period.”

Since first setting out that anticipation, 1.1 million jobs have been created, the unemployment rate has fallen from almost 10 percent to just above eight percent and inflation has been low.  These are enviable trends that have helped pull the U.S. economy out of the tailspin it was in three years ago.

For some the Federal Reserve is shrouded in mystery hidden behind an imposing marble building in Washington, D.C.  There have been calls for more Congressional oversight, audits and accountability.  In the past two years, the institution has begun providing more data and accessibility.  Chairman Ben Bernanke now holds regular news conferences.  The decision-makers even began publishing their own predictions for the first time since the agency was created in 1913.   But more information doesn’t always lead to more insight.

What is unique for our Federal Reserve compared to other global central banks is it is required by law to “promote effectively the goals of maximum employment, stable prices“.  In other words, get as many Americans as possible working without igniting out of control inflation.

So when the Federal Reserve interest rate setting committee meets on Tuesday, we know what its goals are.  We know what its expectations are.  But between the pressures of historically low interest rates helping employment and rising energy prices fueling future inflation, neither of those possibilities are promises.

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