Is the Fed’s Inflation Target Still 2%?

The Federal Reserve’s policymakers ought to ask why, with inflation stuck at 3%, investors have so confidently priced in at least two further interest-rate cuts starting today.

The case for these cuts is far from clear. The economy is behaving unpredictably and the government shutdown is blocking essential data. Yes, the labor market is cooling. Yet the dissonance of persistently higher-than-target inflation, a remarkably opaque economy, and investor complacency over a decision to ease is worrisome. Investors might soon start thinking that the Fed, despite pledges to the contrary, is fine with 3% inflation indefinitely.