Fed Still Puzzled by Inflation, but Rate Increase Is on Track

Fed Still Puzzled by Inflation, but Rate Increase Is on Track
WASHINGTON — The persistence of slow inflation was the dominant topic at the Federal Reserve’s most recent policy-making meeting in September,
but most officials were still inclined to raise the Fed’s benchmark interest rate later this year.
William C. Dudley, the president of the Federal Reserve Bank of New York, has highlighted the market’s equanimity as a reason to keep raising interest rates, noting in a speech this month
that financial conditions have eased since last December even as the Fed has raised its benchmark rate by three-quarters of a percentage point, a substantial increase
“Given that monetary policy affects economic activity
and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent,” she said.
“The Fed’s models tell them that an economy at full employment eventually produces more inflation down the road and they want the Fed funds rate to be back to normal levels before
that happens,” said Chris Rupkey, chief financial economist at Mitsubishi UFJ Financial Group.