The Federal Reserve has kept the discount rate incredibly low for a long time. At some point, they will need to increase it. But how?
An article in the Wall Street Journal points out how careful the Fed has to be, even with its language, in order to tighten without creating a ruckus.
At some point, the Fed must undertake some delicate wordsmithing in the statement it releases after policy meetings.
I admit I am very curious to see how this will be accomplished. Changes in Fed policy have been communicated successfully in the past-and they have also been botched. Markets tend to trade on expectations, well ahead of reality. With so many people hanging on every word from the Fed, it will be interesting to see if the market will react calmly or violently when the Fed signals a move away from the low-rate regime.
