The Federal Reserve decided to leave the federal funds rate unchanged at today’s Federal Open Market Committee meeting. CEI senior economist Ryan Young argues the Fed should be more aggressive in containing inflation:
“The Fed should have raised rates at today’s meeting, though a pause is not the end of the world. While the current federal funds rate range is the highest it has been in 16 years, it is also barely above zero in real terms. The federal funds rate needs to be higher than that to prevent risk-chasing financial institutions like Silicon Valley Bank from being too careless with people’s money.
“The Fed has already done most of what it needs to do to get the money supply back in sync with the real economy. That’s why inflation is down from 9 percent to 4 percent. That is still double its 2 percent target, though.
“The reason inflation is being stubborn is that inflation fighters do not have credibility. Markets expect Washington go right back into stimulus mode the instant there are signs of an economic downturn. A rate increase today would have signaled the Fed’s continued commitment to fighting inflation. A healthy labor market and a growing economy give them the leeway to do it without invoking too much ire from either end of Pennsylvania Avenue.
“The Fed’s Open Market Committee meets again in six weeks. They should increase rates then.”