A Diligent and Judicious Return to Price Stability

At its meeting two weeks ago, the FOMC raised the target range of the federal funds rate by 25 basis points to 4-3/4 to 5 percent. Since the Fed began raising rates in March of last year, the cumulative increase has been 475 basis points. In addition, the Fed has been allowing assets to run off its balance sheet in a systematic way according to the plan announced last May, and this is also helping to firm the stance of monetary policy. The Fed has taken these monetary policy actions because inflation is too high and it is eroding U.S. living standards. High inflation makes it hard for people to make ends meet. High inflation also imposes longer-run costs on our economy. It distorts the decisions households and businesses make about getting an education or training for a new job, or investing in R&D or plants and equipment. In this way, high inflation can harm the pace of innovation, productivity growth, and the potential growth rate of the economy. So it can have lasting detrimental effects on the economy.