If the Federal Reserve goes ahead and raises its benchmark rate Wednesday by 0.75 percentage points, as markets now expect, one of the biggest questions will focus on what has changed since the first week of June, when several members of the Federal Open Rate-setting Committee were. The Market Committee indicated plans to raise interest rates at this meeting by half a percentage point.
Officials have had disappointing data since then: Last Friday, the Consumer Price Index showed that inflation worsened more than expected. Recent consumer survey readings on inflation expectations, which economists widely watch because they believe such expectations can come true, have increased on their own.
So, is that enough for the Fed to audibly call out and walk away from its extraordinarily recent and precise guidance? One problem is that in recent months the Fed has charted a policy course that initially seemed bold to central bank officials, “but soon after the meeting, [the Fed] “She seems to be behind the curve,” said Eileen Mead, a former chief adviser to the Federal Reserve, in an interview on Tuesday. “So one way to get out front this time is to lift 75.”
Consider what happened to the Fed late last year. In December, the Federal Reserve accelerated plans to gradually reduce or scale back asset purchases. Fed Chair Jerome Powell explained after the meeting that during the “blackout” leading up to the November meeting, when the Fed announced its initial wage-cutting strategy, there was a report on wage growth that he found worrisome.
Mr. Powell said he initially considered accelerating the tapering process, but chose not to do so because they had not been “engaged” with this more aggressive plan with the markets. In the weeks after the meeting, inflation and employment data essentially made him regret the decision, so officials sent a telegram of plans to speed things up three weeks before the December meeting.
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