When the Federal Reserve made its first tentative step toward ending its era of extraordinary monetary intervention, it earned a nickname：the taper tantrum. Global financial markets metaphorically bawled like a toddler on news that the Fed planned on “tapering” its stimulus program.
That was nearly four years ago. Ever since, the Fed has moved to decrease access to easy money with the caution of a technician defusing a powerful bomb. After raising its interest-rate target above near-zero levels in December 2015, the Fed waited a full year before doing so again, the slowest pace of rate increases in the modern history of the central bank.
But the era in which the Fed has moved so gingerly toward tighter money looks to be ending this week.
Under the chairwoman, Janet Yellen, the Fed is likely to raise its target interest rate a quarter of a percentage point on Wednesday - a mere three months after the last one. It will probably signal that two more rate increases, barring economic setbacks, are on the way in 2017.
It's not the policy alone that is striking. Over several days this month, half a dozen senior Fed officials made public comments that suggested greater collective confidence and unanimity that the economy can handle tighter money than has been on display since the onset of the financial crisis nearly a decade ago.
Fed officials seem to believe that the United States economy is nearing its full economic potential, that the expansion is more sturdy than it was just a year ago, and that inflation is closing in on the 2 percent mark that the Fed aims for. The advent of unified Republican control of Congress and the White House also brings the possibility of tax cuts and other stimulative measures that would mean the economy need less support from low interest rates to keep growing.
“Recent developments suggest that the macro economy may be at a transition,” said Lael Brainard, a Fed governor, in a March 1 speech, describing a situation of “full employment within reach, signs of progress on our inflation mandate, and a favorable shift in the balance of risks at home and abroad.”
Making the comments all the more notable：Ms. Brainard was perhaps the Fed's most vocal advocate of caution on rate increases just a year ago, arguing that geopolitical risks loomed large.
But something deeper may be afoot than just an improvement in the economic data. In both their tone and actions, Fed officials are displaying greater confidence that they know where the economy is heading - namely that it is converging on a state of full employment and inflation near their 2 percent target.
“We are seeing an evolution away from a tactical approach toward a strategic approach,” said Mohamed El-Erian, chief economic adviser at Allianz. “Their stance now is that they will focus on the destination, not the journey, and that they will lead markets rather than be led by markets.”
