The Federal Reserve has pulled off one of the biggest monetary policy surprises in decades, thanks in part to the lessons it learned from an earlier communications error, and it looks set to deliver on perhaps its most difficult challenge.
But while some would think this refers to the central bank’s chances of executing a so-called soft landing for the world’s biggest economy, where inflation is tamed without triggering a recession, the Fed’s greater accomplishment is actually even more difficult.
kAmxEVD D=@H=J 4@?G:?465 >2C<6ED E@ 2=:8? H:E9 :ED :?E6C6DEC2E64FE 7@C642DED H9:=6 BF:6E=J E@FE:?8 E96 DEC6?8E9 @7 E96 F?56C=J:?8 64@?@>J] %92EVD 6?23=65 :?G6DE@CD E@ 7@4FD @? 8C@HE9 2?5 AC@7:ED @G6C A@=:4J[ 2?5 :E 92D 96=A65 A@H6C DE@4
kAmk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4
k7:8FC6mk:>8 DC4lQ9EEADi^^HHH]E96DEC66E]4@>^]:>286^407:ETar90g__TarH0`a__^|%
kAm%96 u65VD AC676CC65 :?7=2E:@? 82F86 4@@=65 >@56DE=J =2DE >@?E9[ H:E9 E96 4=@D6=J EC24<65 4@C6 C625:?8 62D:?8 E@ a]gT[ 6G6? 2D 4@?DF>6C DA6?5:?8 A@AA65 3J ?62C=J EH:46 E96 =6G6= @7 (2== $EC66E 7@C642DED] k^Am
k9amp A2E:6?E u65 2?5 DFC8:?8 >2C<6EDk^9am
kAm%96 !rt C625:?8 7@==@H65 2? FAH2C5=J C6G:D65 E2==J 7@C 7@FCE9BF2CE6C vs![ H9:49 D9@H65 2? :>AC@G65 8C@HE9 C2E6 @7 b]cT 2?5 :?7=2E:@? AC6DDFC6D E92E 96=5 G6CJ 4=@D6 E@ E96 u65VD aT @G6C E96 7:?2= D:I >@?E9D @7 =2DE J62C]k^Am
kAmy6776CJ #@249[ 49:67 64@?@>:DE 7@C {!{ u:?2?4:2= 😕 r92C=@EE6[ D2JD E96 3C@256C DA6?5:?8 EC6?5 😀 DE:== H62<6?:?8] w6 ?@E6D E96 564=:?6 :? A6CD@?2= :?4@>6[ 3FE 255D E92E QH96C6 H6 D:E E@52J[ >2C<6ED ?665 E@ 92G6 E96 D2>6 A2E:6?46 E96 u65 😀 6I9:3:E:?8]Qk^Am
kA 2=:8?lQ46?E6CQmkDEC@?8mk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4
kAm$E:==[ :7 4@?DF>6CD 2C6 DA6?5:?8[ :?7=2E:@? 😀 D=@H:?8 2?5 E96 64@?@>J 😀 8C@H:?8[ u65 C2E6 7@C642DED >:89E ?@E >2EE6C D@ >F49 2?5 E96 >2C<6EVD @3D6DD:@? H:E9 :ED >6DD28:?8 E@ 56C:G6 :ED ?6IE >@G6 H:== BF:4<=J 368:? E@ 7256]k^Am
kAm(6VG6 D66? 6G:56?46 @7 E92E 2=C625J[ H:E9 E96 $U2>Aj! d__ C:D:?8 E@ 2 C64@C5 d[adc]bd A@:?ED @? %9FCD52J E@ 4=@D6 @FE 2 BF2CE6C=J 82:? @7 `_]`eT[ E96 36DE 😕 7:G6 J62CD]k^Am
kAm%96 36?49>2C
k9amu65VD A2DE 6CC@CD 92F?E A@=:4Jk^9am
kAmQ(6’C6 😕 2 D:EF2E:@? H96C6 :7 H6 62D6 E@@ >F49 @C E@@ D@@?[ H6 4@F=5 D66 :?7=2E:@? 4@>6 324<[ 2?5 :7 H6 62D6 E@@ =2E6[ H6 4@F=5 5@ F??646DD2CJ 92C> E@ 6>A=@J>6?E 2?5 A6@A=6’D H@C<:?8 =:G6D[Q !@H6== E@=5 C6A@CE6CD :? (2D9:?8E@? 7@==@H:?8 E96 u65VD =2DE A@=:4J >66E:?8] k^Am
kAmQ(6 H2?E E@ 36 42C67F=[Q 96 25565] Qp?5 7@CEF?2E6=J[ H:E9 E96 64@?@>J 8C@H:?8[ H:E9 E96 =23@C >2C<6E DEC@?8[ 2?5 H:E9 :?7=2E:@? 4@>:?8 5@H?[ H6 42? 2AAC@249 E92E BF6DE:@? 42C67F==J 2?5 =6E E96 52E2 DA62< @? E92E]Q k^Am
kAm%96 u65VD E@?6 =:<6=J C67=64ED E96 4C:E:4:D> :E 72465 😕 564=2C:?8 A@DE4@G:5 :?7=2E:@? AC6DDFC6D QEC2?D:E@CJQ 😕 62C=J a_a`] k^Am
kA 2=:8?lQ46?E6CQmkDEC@?8mk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4
kAm(:E9 E96 u65 92G:?8 >256 E92E AC@8?@D:D 2?5 C6A62E:?8 :E E9C@F89 >F49 @7 E92E DF>>6C[ :?7=2E:@? F=E:>2E6=J 2446=6C2E65 72DE6C E92? 2?J@?6 6IA64E65 2?5 A62<65 2E 2? 2??F2=:K65 C2E6 @7 h]`T :? DF>>6C a_aa]k^Am
kAm%96 $U2>Aj! d__VD 82:?D E9:D J62C 92G6 2=D@ 567:?65 2 ?@E23=6 C:D6 😕 %C62DFCJ 3@?5 J:6=5D[ H9:49 92G6 25;FDE65 E@ E96 u65VD 677@CED E@ 2=:8? >2C<6ED E@ :ED 7@C642DE @7 E9C66 C2E6 4FED E9:D J62C 2D H6== 2D 2 967E:6C D=2E6 @7 :DDF2?46 E@ 7F?5 E96 8@G6C?>6?EVD 7:D42= 2>3:E:@?D]k^Am
kAmq6?49>2C< `_J62C %C62DFCJ ?@E6 J:6=5D 92G6 C:D6? >@C6 E92? bc 32D:D A@:?ED W_]bc A6C46?E286 A@:?EDX E9:D J62C[ 6?5:?8 E96 BF2CE6C 2E c]a_cT[ H9:=6 aJ62C ?@E6D 82:?65 bf]g 32D:D A@:?ED @G6C E96 D2>6 A6C:@5 E@ c]eagT]k^Am
kAmQp?@E96C H2J @7 =@@<:?8 2E E96 `_J62C %C62DFCJ J:6=5 DFC86 :D E@ 4@?D:56C :E 2 D:8? @7 :?4C62D:?8 :?G6DE@C 4@?7:56?46[Q D2:5 k2 9C67lQ9EEAi^^%C25:?8]3:KQm%C25:?8]3:Kk^2m 2?2=JDEk6>mU?3DAjk^6>m#29F= }2>3:2>AFC2E9[ 2D :?G6DE@CD 6I:E 7:I65:?4@>6 :?G6DE>6?ED :?E@ C:D<:6C 2DD6ED H:E9 9:896C C6EFC?D]k^Am
k9amxEVD E96 64@?@>J[ DEFA:5k^9am
kAm%92E =:<6=J >62?D :?G6DE@CD 2C6 DE2CE:?8 E@ 36=:6G6 😕 2 &]$] 8C@HE9 DE@CJ E92E 92D =@DE D@>6 @7 :ED =2E6a_ab DE62> 3FE 😀 DE:== @? A246 E@ 4@?E:?F6 255:?8 ;@3D 2?5 A@H6C 4@?DF>6C DA6?5:?8 2D :E 2G@:5D C646DD:@? 2?5 255D 7FCE96C 5:DE2?46 36EH66? :ED6=7 2?5 E96 C6DE @7 E96 H@C=5VD >2;@C 64@?@>:6D] k^Am
kAmx2? $96A96C5D@? @7 !2?E96@? |24C@64@?@>:4D ?@E6D E92E DA6?5:?8 @? D6CG:46D[ E96 >@DE :>A@CE2?E 8C@HE9 4@>A@?6?E[ 92D 2446=6C2E65 E@ c]dT @G6C E96 A2DE E9C66 >@?E9D[ E96 72DE6DE D:?46 E96 A@DEr~’xs C63@F?5 😕 a_a`]k^Am
kAmp?J 82:?D 😕 |2C49[ 96 DF886DED[ H:== 3C:?8 FAH2C5 C6G:D:@?D E@ 7:CDEBF2CE6C vs! 7@C642DED[ H9:49 E96 pE=2?E2 u65 4FCC6?E=J A68D 2E 2C@F?5 a]`T]k^Am
kA 2=:8?lQ46?E6CQmkDEC@?8mk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4
kAmr@CA@C2E6 AC@7:ED[ A@H6C65 A2CE=J 3J 4@?DF>6CD H9@ 2C6?VE H@CC:65 23@FE E96:C ;@3D 2?5 2C6 92AAJ E@ 5:A :?E@ A@DEA2?56>:4 D2G:?8D[ 2=D@ 42CCJ D@>6 D@=:5 >@>6?EF> :?E@ E96 DE2CE @7 E96 J62C]k^Am
kAmq:== p52>D[ 49:67 64@?@>:DE 7@C r@>6C:42 q2?< :? s2==2D[ ?@E6D E92E DEC:AA:?8 @FE =@DD6D 2E E96 u65 WE:65 E@ :ED Sf]f EC:==:@? 32=2?46 D966EX[ H9:49 2C6 :?4=F565 :? E96 qFC62F @7 t4@?@>:4 p?2=JD:DVD 52E2[ 4@CA@C2E6 AC@7:ED C@D6 2E 2? 2??F2=:K65 C2E6 @7 d]hT @G6C E96 7:?2= E9C66 >@?E9D @7 =2DE J62C] k^Am
k9am#2E6 4FED VH6=4@>6 3FE ?@E ?66565Vk^9am
kAm{@@<:?8 :?E@ a_ac[ (2== $EC66E 7@C642DE6CD D66 4@==64E:G6 $U2>Aj! d__ AC@7:ED C:D:?8 ;FDE F?56C `_T[ 2C@F?5 5@F3=6 E96 a_ab 7:8FC6[ E@ 2? @G6C2== 2G6C286 @7 Sacb 2 D92C6]k^Am
kAmQ%96 DE@4< >2C<6E A6C7@C>65 6IEC6>6=J H6== 5FC:?8 E96 7:CDE BF2CE6C @7 a_ac[ 2?5 2D =@?8 2D 62C?:?8D C6>2:? DEC@?8[ E96 >2C<6E 42? 4@?E:?F6 E@ >@G6 9:896C[Q D2:5 y6C6>J $EC2F3[ 49:67 6I64FE:G6 2?5 49:67 :?G6DE>6?E @77:46C 2E r@2DE2= (62=E9 😕 u@CE {2F56C52=6[ u=2] k^Am
kAmkDEC@?8m|@C6 t4@?@>Jik^DEC@?8mk^Am
kF=mk=:mk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4
kAmQ(9:=6 C2E6 4FED 7C@> E96 u65 H@F=5 36 H6=4@>6 ?6HD 7@C DE@4
kAm$@[ H:E9 3@?5D =:<6=J 7@4FD65 @? DFAA=J >6EC:4D 2?5 4=@D6=J EC24<:?8 E96 =6G6=D @7 7@C6:8? 56>2?5 😕 36?49>2C< 2F4E:@?D 2?5 DE@4
kA 2=:8?lQ46?E6CQmkDEC@?8mk2 9C67lQ9EEADi^^HHH]E96DEC66E]4@>^:?G6DE:?8^DE@4