2023-09-06 23:16:00
The Federal Open Market Committee (FOMC) has continued to raise interest rates since March last year, raising the Federal Funds (FF) interest rate target by a total of 5.25 points. That might be enough to push it down to the 2% target. An analysis by two Chicago Fed economists suggested.
Stefania D’Amico and Thomas King said in a Chicago Fed Letter published on their website on Wednesday that “models project inflation to fall to the Fed by mid-2024, avoiding a recession. The policy tightening already in place is sufficient to bring the system back closer to its target.”
Two economists said the Federal Reserve’s 18-year cycle of rate hikes has already helped ease U.S. inflation, which hit a 40-year high in June 2022.
Economists said about 66% of the tightening effect so far has already had an impact on growth, and about 75% on the consumer price index (CPI).
The time lag for a Federal Reserve rate hike to spread across the economy, previously thought to be 18 months to two years, has now been shortened by some in the new economic climate.
According to D’Amico and King, the policy shocks are being felt more strongly at the beginning of the tightening cycle, and the maximum effect may have already been absorbed.
“A stronger expectations channel means stronger monetary policy, meaning that the estimated effects are not only faster, but are generally larger than expected. It may still be big enough,” the economists said.
Original title:One Fed Model Suggests Central Bank Has Already Beaten Inflation(excerpt)
(Updates with analysis from The Economists, etc.)
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