The limits of central banking 'toolkit'

The change in the Fed's forecast and a possible shift in policy is perhaps a good time to review how central banks - including the RBI - responded to the crisis, and debate future possibilities

Global financial markets are adjusting to the possibility of sooner than expected interest rate hikes by the US Federal Reserve. Although the Federal Open Market Committee (FOMC) — rate-setting body of the Fed — left the policy rate unchanged last week, its latest economic projections show interest rates can increase by 50 basis points by 2023. Some FOMC members expect to raise rates by next year. This is a big shift from the March meeting when most members expected interest rates to remain near-zero through 2023. The latest projections by the Fed are significant and would perhaps be seen as