One of the Federal Reserve’s most consequential challenges over the next few months will be communicating how it will pull back on its torrid pace of bond buying stimulus without unsettling financial markets.
As Fed officials approach this challenge, at least two appear to have taken off the table a strategy used with some success just under a decade ago. Then, the central bank set out employment and inflation thresholds that once crossed would open the door to increasing short-term rates, without mechanically promising action.
