As the top policymaking committee of the US Federal Reserve meets, the central bank finds itself facing three less-than-ideal options for interest rates. The one it appears most likely to take, a “skip” maintaining rates while expecting to resume hikes at the next meeting, may be the least desirable. While the approach may grant officials time to gather data on a policy tool that acts with variable lags, an additional month of analysis is unlikely to significantly enhance their understanding, especially given recent data trends supporting a hike. However, a pause could allow previous rate hikes to play through the economy while reducing possible damage to growth and financial stability. In this context, the current framing of the policy debate is too narrow, failing to stimulate the kind of deliberation that could enable the Fed to contribute to inclusive growth and financial stability.
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