The Fed needs a new strategy for 2019

JEROME POWELLS&P, chairman of the Federal Reserve, says “basically everything” keeps him up at night. As well it might. The fiscal stimulus from President Donald Trump’s tax cuts, which in 2018 has shielded America from a global economic slowdown, will soon begin to subside. The president’s trade war is sapping confidence. The 500 index has fallen by almost 10% in a little over two months as growth expectations have ebbed. The difference between yields on short-term and ten-year bonds, which typically turns negative before recessions, has fallen close to zero, spooking investors. To cap it all, the president has been attacking the central bank for raising interest rates, which it has done three times this year to try to ward off inflation.Mr Powell seems to have wavered under the pressure. In October he hinted that investors should expect many more rate rises before the Fed’s work was complete; in November he suggested that hardly any more are needed. Mr Powell is rooting around for a doctrine because the one he inherited when he took over the job in February, which calls for monetary policy to tighten roughly once a quarter, is becoming obsolete. A rate rise remains likely at the Fed’s upcoming meeting, which concludes on December 19th. But it will probably be the last on a predictable schedule. In 2019 a fresh course will be needed—one that is fit for a new phase in the economic cycle.