The Fed Shouldn’t Settle for Above-Target Inflation
Progress to date owes a lot to confidence that the central bank will do its job.
Can it be trusted?
Photographer: Chip Somodevilla/Getty Images
Financial-market analysts agree that the Federal Reserve will raise interest rates another notch this week. But they’re split on where monetary policy might go after that. The Fed needs to resolve this disagreement — by making clear that it’s committed to getting inflation all the way back down to the 2% target.
Fed officials are expected to approve a quarter-point rise, and investors would be shocked if it didn’t happen. At the same time, markets have moved from expecting further tightening beyond this week’s decision to thinking this rise might be the last. Why? Some are betting inflation is already as good as beaten. Others think the Fed won’t risk further tightening, and possibly causing a recession, if inflation levels off at, say, 3%.