What Happens If, Amid an Election, the Fed Cuts Key Interest Rate Only To See Inflation Surge Again?
The question arises because we’re getting hints that the Fed’s 2 percent inflation target doesn’t have to be actually reached before monetary officials ease up on rates.
What if the Federal Reserve proceeds to cut its key interest rate this year — as it clearly aims to do — only to see inflation start to go back up? We are already getting hints that the Fed’s vaunted 2 percent inflation target does not have to be actually reached before monetary officials ease up on rates; just moving toward it will suffice.
The Federal Reserve’s chairman, Jerome Powell, stated on Wednesday that the current policy interest rate is “likely at its peak.” Does that mean Fed policymakers would tolerate a higher inflation rate rather than revert back to lifting interest rates? Such a decision would be welcomed by certain Democrat lawmakers who think the inflation target should be higher.
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