Policymakers at this meeting will probably want to set themselves up to slow down in the future, he said, while leaving their options open in case data between now and the Fed’s December meeting suggest that the economy and inflation will remain hot.
Understand Inflation and How It Affects You
While inflation is expected to slow eventually, that process is likely to take time. Consumer demand is chugging along, job openings remain plentiful, and wages are still rising quickly. Energy shocks stemming from the war in Ukraine could easily push prices higher. Central bankers will want to keep an eye on those developments.
The Fed is likely to leave its options open.
Given the risks that Mr. Powell’s central bank is staring down, many careful Fed watchers expect it to leave the door open to a slowdown in rate increases in December without committing to one.
“I’m not even sure they’ve decided: I think they really just want optionality to step down in December,” said Michael Feroli, chief U.S. economist at J.P. Morgan. Of Mr. Powell, he said: “I do think he wants to make sure that December is considered a meeting where they actually go in and have a debate.”
Most Fed officials have predicated slowing and eventually stopping rate increases more on the level of interest rates than on what is happening with inflation. The logic: If officials have moved rates high enough that they are clearly weighing on growth and hold them there, that will pull inflation lower over time.
“Holding the economy in a restrictive stance of policy also continues to bridle it,” Mary C. Daly, president of the Federal Reserve Bank of San Francisco, said during a Yahoo Finance interview last month. “So we’ll end at a rate that we think is appropriate and in terms of where to stop and look around.”
Given that, a slowdown might be possible before inflation moderates, especially if growth pulls back and the labor market begins to soften.
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