Final Leg of Inflation Fight Might Be Easier Than Expected
A new research paper from the Atlanta Fed stresses that too much concern over the “last mile” of the fight could result in a policy error.
While some economists worry that the U.S. inflation fight may become more difficult as the Federal Reserve gets closer to its 2 percent target, a new central bank research paper argues that’s not the case.
“It is difficult to conclude that the last mile of disinflation is more arduous than the rest,” Federal Reserve Bank of Atlanta economist David Rapach wrote in a paper released Tuesday. “In terms of policy, this implies that the Fed need not view the final phase of the disinflation process as fundamentally different from the other phases.”
Fed officials’ quarterly economic projections show they expect three rate cuts in 2024 as inflation falls this year, according to their median forecast. Still, policymakers have pushed back against market expectations that they would begin cutting interest rates as soon as their March meeting.
Earlier Tuesday, Fed Governor Christopher Waller said the central bank will be able to lower rates this year, absent a rebound in inflation. When that time comes, he argued, policymakers should be cautious and methodical.
The Atlanta Fed economist concluded that too much concern over the “last mile” of the fight could result in a policy error.
“From a risk management perspective, believing that the last mile is more strenuous could cause the Fed to tighten policy more than is necessary, which increases the likelihood of a recession and a sharp increase in unemployment,” he wrote.
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