Monetary Policy Rate

The Federal Reserve’s new policy approach is that policymakers want to see “actual progress, not forecast progress” before deciding to change its policy stance. Substantial actual progress is occurring in the economy, some faster than others. How much monetary accommodation is needed to meet the ultimate employment and inflation objectives is debatable. But it is less than when the pandemic started and less after the passage of $1.9 trillion in federal stimulus.

Determining when a policy stance has become too accommodative is not an easy matter—but enabling excessive risk-taking to become well-entrenched is comparable to past policy mistakes by allowing a build-up of inflation and inflation expectations. Both are difficult to unwind, and past episodes have shown it is impossible without triggering significant adverse effects in the economy.