The Fed Is Right to Keep Its Options Open
Preparing to raise rates amid persistent inflation is prudent risk management, whether or not markets like it.
It’s not the Fed’s job to keep these guys clapping.
Photographer: Andrew Burton/Getty Images
The Federal Reserve has recognized an important reality: Sometime soon, it might actually have to raise interest rates significantly to curb inflation. Officials are right to put themselves in a position to act if necessary, even if markets might not like it.
For most of this year, the Fed has predicated its monetary policy on projections that, in hindsight, contained an element of magical thinking. Officials expected inflation to remain within control even as they kept providing monetary stimulus to an economy running beyond capacity. As of September, the Fed’s median forecast assumed that annual consumer-price increases would subside to 2.1% by the end of 2024, while the unemployment rate would plunge to 3.5% and short-term interest rates would remain very low, reaching a mere 1.8%.