The Fed Wants to Quash Inflation. But Can It Do It More Gently?

Mr. Bostic said this week that the policy rate should rise to between 4 and 4.5 percent by the end of the year, which could mean either a three-quarter-point move and then a half-point move or two half-point moves.

And Thomas Barkin, president of the Federal Reserve Bank of Richmond, said in an interview that while he has not made up his mind about what size move would be appropriate in November, investors risk getting too caught up on individual data points.

The picture has not changed much since the Fed’s September meeting, he said: Inflation is stubborn and broad-based, supply chains are taking time to heal, and workers remain scarce. The trajectory for demand remains “jumbled,” he said.

Whether the Fed can achieve a soft landing “is not the question that I’m focused on — the question that I’m focused on is: Is there a path to get inflation back to target?” Mr. Barkin said. “Of course it would be preferential to have that done with the minimum amount of stress. But I think the goal is to get inflation down.”

Markets are still betting heavily on a bigger move in November, based on pricing. They then expect the Fed to slow its increases to half a point in December, roughly matching the rate path implied in the central bank’s latest Summary of Economic Projections.

But there have been different phases in monetary tightening — and the current one is more subject to change. Earlier this year, the central bank was trying to raise rates from a very low level, but policymakers think they are now above the dividing line between policy that helps the economy and one that hurts it, which is known as the “neutral” rate.

Now that every move is a step toward further restricting the economy, Fed officials are putting more emphasis on incoming data and are making decisions on a meeting-by-meeting basis. If they raise rates too much, they could find that they have overdone it months or years from now, once the full effects of today’s moves take hold.

Article source: https://www.nytimes.com/2022/10/06/business/economy/the-fed-wants-to-quash-inflation-but-can-it-do-it-more-gently.html