The Overshoot

The Overshoot

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The Overshoot
The Overshoot
The Fed Prepares to Raise Rates
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The Fed Prepares to Raise Rates

But that's not the same as being "hawkish"

Matthew C. Klein's avatar
Matthew C. Klein
Dec 16, 2021
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The Overshoot
The Overshoot
The Fed Prepares to Raise Rates
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Federal Reserve officials are looking to move on from the pandemic as the economy recovers briskly. There is a new consensus that interest rates need to rise relatively quickly to keep things on track.

But they aren’t preparing to accept slower growth and higher unemployment in exchange for keeping inflation under control, much less planning to tank the economy. In fact, they remain remarkably tolerant about the prospects of inflation running faster than the 2% goal for several years.

For better or worse, Fed officials aren’t becoming more “hawkish”. Instead, their revised outlook for interest rates reflects optimism about the economy’s underlying strength more than anything else. That optimism might be misplaced, but it’s not a reason to be bearish, which probably explains why stock and commodity prices rose along with bond yields in the aftermath of the latest policy announcement.

First, note the change to the policy statement released after Wednesday’s meeting.

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