What Does the Fed’s Hawkish Pivot on Inflation Mean?

Dec 20

The Federal Reserve met last week and made some announcements that, while expected, have had an impact on both the markets and the economy. The Fed’s goal is to allow enough inflation so that the economy can recover and grow. The challenge is that the economy may overheat, causing spiking inflation that requires drastic action on interest rates. On the other side, too aggressive action on interest rates, and too soon, can cut off the recovery and lower growth.

The Fed has been clear that it is, and will remain, guided by data. In action, this means that the economy’s changing needs will dictate Fed policy as new data comes in, rather than the Fed holding to a discrete goal. The continued increase in inflation, along with other measures indicating strength in the economy, has led the Fed to conclude that guidance on two more rates increases in 2022, for a... ...