Are the Federal Reserve’s Rate Increases Working?

Economists at Goldman Sachs estimate that the Fed’s preferred inflation gauge, stripping out food and fuel costs, will slow to 2.9 percent by next December from 5.1 percent today. That would be way better, but still be notably too fast.

Still, Fed officials do not want to push rates endlessly higher, heedless of how much that could cost the economy, as this year’s policy moves are still only beginning to kick in.

That is why policymakers have come to support slowing down their policy moves. Officials have been moving interest rates up by three-quarters of a percentage point per meeting since June, but investors expect them to slow their rate increases to half a point in December before feeling their way forward in 2023.

Dialing back the pace will give them time to feel out how much more is needed.

“By moving forward at a pace that’s more deliberate, we’ll be able to assess more data,” Lael Brainard, the Fed’s vice chair, said in a speech on Monday.

Yet slowing does not mean stopping. Central bankers have also communicated that they are resolved to keep their foot on the brake until they are convinced that they have done enough — which means rates will probably creep higher than they had expected as recently as September. In recent days, some policymakers have acknowledged that it is possible that rates could climb to — or even above — 5 percent.

Letting up too early, they worry, would allow inflation to become a permanent feature of the American economy, making it all the more difficult to stamp out.

So far, “it appears tighter money has not yet constrained business activity enough to seriously dent inflation,” Raphael Bostic, president of the Federal Reserve Bank of Atlanta, wrote in an essay on Tuesday. “While there are risks that our policy actions to tame inflation could induce a recession, that would be preferred to the alternative.”

Ben Casselman and Jason Karaian contributed reporting.

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