Fed stays cautious on recovery stimulus

July 31, 2014

"It would be hard to make a strong case at this point that the economy is roaring out of a slow recovery," Kathryn Dominguez says in the Bankrate.com article by Allison Ross, "Federal Reserve preview: No summer blockbuster." The article notes that although the U.S. economy is climbing steadily out of recession, the Fed is still maintaining a policy of "gradualism," buying up slightly fewer bonds each month as part of its quantitative easing strategy.

Ross reports that this month's Fed meeting will likely continue this trend, although the bank is expected to begin raising interest rates soon, for the first time since 2006. The Fed's caution can be partly ascribed to the mixed bag of financial indicators it has received: despite rapid drops in unemployment, wage growth is still slow and long-term unemployment is still a burden. All of this constitutes what Ross calls "slack in the labor market," making the economic future difficult to predict and precluding any dramatic action by the Fed. "They're very nervous about putting the brakes on what is a very muted recovery relative to what we've seen after past recessions," Dominguez explains.

Kathryn Dominguez is a professor of public policy at the Ford School and a professor of economics in the College of Literature, Science and the Arts.