Economic growth since the deep recession of 2008-2009 has been modest but balanced, and momentum is now building. The outlook for sustained cyclical growth is favorable. So far this expansion, the pace of growth has been dampened by real and financial adjustments following the unsustainable debt and housing bubbles, along with harmful economic and regulatory policies. Not surprisingly, the Fed’s unprecedented monetary stimulus has been largely ineffective in addressing the real, nonmonetary constraints. As these post-crisis adjustments conclude, economic performance will strengthen in 2015-2016, supported by the Fed’s aggressive monetary accommodation and lower energy prices.
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The Federal Reserve should fix the interest on reserves floor for the federal funds rate to facilitate the normalization of interest rate policy without interfering in financial markets. Instead, the Fed's intention to employ reverse repurchase agreements to establish a funds rate floor inserts the Fed into money market arbitrage and violates the minimum intervention principle of central banking.
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