According to the Wall Street Journal, before the Federal Reserve can exit its aggressive bond-buying strategy, it needs to be careful not to repeat the experiences of the last several months. Instead, the Fed should drive a more convincing wedge between its bond purchases and its commitment to keeping rates low.
One option would be to put a floor on where it would like inflation to be. Rather than just saying it is targeting 2% inflation, it might put a lower bar of, say, 1.5% inflation that it aims to clear. Lately, the Fed's preferred measure has been running at 1.2%.
There is no telling whether such measures would convince investors to keep long-term rates low in the face of tapering. But rather than rely on its jawbone again, the Fed will need to try something new.Sponsor Content