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Bill Dudley

The Fed Is Risking a Full-Blown Recession

The execution of its new inflation-targeting regime leaves much to be desired.

Pushing it.

Pushing it.

Photographer: Drew Angerer/Pool/AFP/Getty Images

The U.S. Federal Reserve’s new approach to managing inflation, unveiled last summer, makes a lot of sense: By seeking to achieve an average of 2% — that is, by allowing inflation to overshoot enough to offset previous undershooting — the central bank should be able to keep people’s expectations better anchored around the 2% target.

But, unfortunately, the way the Fed is putting this long-term monetary policy framework into practice is likely to result in more volatile interest rates and more risk of recession.