Mind the gap

Question: Is the Fed expected to keep rates elevated even if inflation normalizes?

Susan Hill: At Jackson Hole, Chair Powell said that the Fed's going to keep at it until the job is done. And what we think that means is that the Fed will continue to tighten monetary policy until they are really confident that inflation is moving in the right direction. However, because monetary policy works with the lag and because inflation is a lagging indicator, we think that once the inflation percentages become close to 2%, that the Fed will move back to a more neutral stance at that time.