Fed study shows policy is much stricter than rates alone

Financial conditions mean the Fed’s benchmark policy rate was up from 5.25% in September, while the actual target range was 3% to 3.25%, according to analysis published Monday in the San Francisco Fed’s weekly economic paper.

“The proxy measure suggests that the monetary policy stance has recently been significantly tighter than the federal funds rate,” wrote study authors Jason Choi, Taeong Doh, Andrew Foster and Xenia Martinez.

Policymakers have raised interest rates to 3.75 per cent so far this year, the fastest pace since the early 1980s, as they try to curb the highest inflation in 40 years. Officials gave a fourth straight 75-basis-point increase last week, bringing down the federal funds benchmark rate target from 3.75% to 4%.

The authors’ counts update the one from 2016 and take this into account. Fed’s balance sheet Further guidance on the path of mitigation program and policy.

Officials are reducing their holdings of treasuries and mortgage-backed securities at a $1.1 trillion annual pace and have repeatedly explained that they expect rates to continue to rise to restore price stability. While the Fed only began raising rates from zero levels in March, their public comments on the need to tighten policy that began months earlier had already moved the proxy interest rate higher, the authors wrote.

Some Fed officials have begun to express concern about the central bank potentially moving too quickly with interest rate hikes and putting the economy at risk of plunging into recession. When they raised rates last week, a Federal Open Market Committee statement explaining the decision said officials would “take into account the cumulative tightening”. Monetary policy“And the fact that it acts with a lag.

This story has been published without modification in text from a wire agency feed.