Have the Fed’s Rate Increases Meant Nothing?
The economy’s resilience suggests monetary policy may be broken, having contributed very little — if anything — to the big slowdown in inflation.
This economy isn’t normal.
Photographer: Olivier Douliery/AFP via Getty Images
It seems Federal Reserve policymakers have gone from zeroes to heroes. Early last year, critics — and there were many — said the Fed was woefully behind the curve on inflation, and that the only way it could win the battle was to push the economy into a damaging recession by raising interest rates very high, very fast.
Well, the Fed did just that, increasing its key rate from almost nothing to 5.50%. Inflation has now slowed to within sight of the central bank’s 2% target. But instead of contracting, the economy has gathered strength, expanding in the third quarter at an annualized rate of 5.2%, the fastest pace since 2014 if you exclude the wild gyrations during the pandemic years. And the unemployment rate has held below 4% for 21 straight months, the longest stretch since the 1960s. The Fed’s critics? Many now admit the economy may achieve what they said was impossible: a fabled “soft-landing.”