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Conor Sen

A Dovish Fed Should Embrace the Market's Optimism

To be credible on its pledge to hold interest rates in check, the central bank must prove it hasn't missed the boat on economic growth.

Fed Chair Jerome Powell has some convincing to do.

Fed Chair Jerome Powell has some convincing to do.

Photographer: Bloomberg

The Federal Reserve's monetary policy meeting this week is a chance for the central bank to get back on the same page with the bond market. The challenge will be pushing back market expectations that an interest rate increase could come as soon as the end of next year. How it delivers that message convincingly will be key.

Chair Jerome Powell's language in recent speeches has stressed that the factors needed to justify raising rates will be much different than in the past. The new framework is about waiting for economic outcomes to be achieved before increasing rates, rather than relying on models that haven't done a good job of correctly forecasting inflation in recent decades. Even if policy makers ultimately end up raising rates in 2023, they’re unlikely to hint at that possibility this week.