Fed Shifts Focus to Preventing Recession As Well As Beating Inflation

New York, NY, December 14, 2023-"The Federal Reserve has two mandates: lower inflation and prevent recession,” reports the Wall Street Journal. “For two years, though, it behaved as if only the first mattered, raising interest rates so steeply that it knew it was courting recession.

“This week, it pivoted. ‘You’re getting now back to the point where both mandates are important,’ Fed Chair Jerome Powell told reporters Wednesday after the central bank’s meeting. ‘We’ll be very much keeping that in mind as we make policy going forward.’

“This pivot means the Fed is ready to backstop the economic recovery. It doesn’t rule out a recession, but makes one much less likely.

“Officially, the Fed is still unsatisfied with inflation, which Powell said remains too high. Officially, it says it’s more likely to raise rates than cut them at their next few meetings.

“Unofficially, the Fed thinks inflation, which has fallen much faster than almost anyone expected, will be in the vicinity of its 2% target before long, and the priority in the coming year will be lowering rates enough to prevent a recession.

"In their projections released Wednesday, officials see the federal-funds rate target ending 2024 between 4.5% and 4.75%, 0.75 percentage point lower than today, and a half-point lower than they projected in September.

“More important than the numbers was the decision to publish them. Before the meeting, there was speculation that Powell and his colleagues would strike a hawkish tone to rein in markets that had already priced in rapid rate cuts. Instead, they ratified those expectations, and thus effectively eased monetary policy.”