Fed officials have been busy these past few weeks arguing that the stance of monetary policy is now likelyto its two percent target. The data, however, do not show many signs that the economy is being restricted.for the month of September. What’s more, there were upward revisions to July and August, so the American shopping spree has been going on stronger for longer. The core control figure, which goes into the calculation of gross domestic product, was revised up by a tenth for each month.
. The Federal Reserve decides it needs to bring down inflation or ward off future inflation, so it raises its overnight interest rate target and sends its officials out on a forward communication strategy meant to complement the rate hike by convincing the market to move longer rates upward as well. After some sort of lag, higher rates push down employment and economic output.
Fed officials have frequently stated that they think their hikes from earlier this year and even last year are still working their way through the economy., for some reason. This is a bit hard to justify in theory because long-term inflation expectations have remained anchored. What’s making the lags, well, so laggy?
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