The Fed Should Stay the Course
Financial markets expect the central bank to slow its monetary tightening. That would be a mistake.
Keep it up.
Photographer: Al Drago/Bloomberg via Getty Images
The Federal Reserve’s antidote to high inflation is working. Demand is cooling, wage increases are moderating, and prices are rising more slowly than before. Even so, it’s still too soon to be confident that, without further monetary tightening, inflation will fall all the way back to the Fed’s 2% target.
After their meeting today, the central bank’s policymakers should state this clearly, and raise the policy rate by another 50 basis points, to a range of between 4.75% and 5%. Financial markets are expecting a smaller increase of 25 basis points, following four consecutive hikes of 75 points and one of 50 points last year. Despite the recent good news, this would be to err on the side of timidity.