The Fed faces an interesting dilemma:
“That
"box" is the quandary of how the Fed should respond to the dynamics
of late-cycle economic expansions. As in the middle of the last decade, the Fed
is concerned about an overheating economy. Back then, the fear stemmed from the
booming housing sector. (Now the concern is a labor shortage -- with increased
immigration politically unlikely and with the unemployment rate already down to
4.1 percent, below the Fed's longer-run projection of 4.6 percent.) Financial
conditions were very loose, making the Fed think that overheating risks would
become even more pronounced in the future.”