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Are the Federal Reserve’s Rate Increases Working?

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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 might be way higher, but still be notably too fast.

Still, Fed officials are not looking for to push rates endlessly higher, heedless of how much that would cost the economy, as this yr’s policy moves are still only starting to kick in.

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

Dialing back the pace will give them time to feel out how far more is required.

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

Yet slowing doesn’t mean stopping. Central bankers have also communicated that they’re resolved to maintain their foot on the brake until they’re convinced that they’ve done enough — which suggests rates will probably creep higher than that they had expected as recently as September. In recent days, some policymakers have acknowledged that it is feasible that rates could climb to — or even above — 5 percent.

Letting up too early, they worry, would allow inflation to turn into a everlasting feature of the American economy, making it all of the tougher to stamp out.

Thus far, “it appears tighter money has not yet constrained business activity enough to noticeably 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 may be preferred to the choice.”

Ben Casselman and Jason Karaian contributed reporting.

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