For the Federal Reserve, deciding when to raise rates for the first time in nearly a decade has become the easy part.
The harder call, and one increasingly preoccupying U.S. central bankers, is how fast to move after that, navigating stuttering global growth and nervous markets on the Fed’s long journey back to pre-crisis policies.
Betting on the “lift-off” of rates from near-zero has become less of a gamble, particularly after an exceptionally strong jobs report last Friday. After months of wavering as the global economy appeared to weaken, investors have pegged that first rate rise to the middle of next year, and seem to have accepted that the U.S. economy can go its own way.
Recent conversations with Fed policymakers, staff and economists point to an internal debate shifting from the first rate move to the pace of increases thereafter. Stagnant inflation has become less of a concern in light of continued improvement in labor markets. Barring a serious shock, policymakers have indicated they will press ahead with liftoff in coming months, then move cautiously to ensure they do not stifle the recovery by acting too fast.
“Getting started is probably helpful… Otherwise you keep deferring and keep deferring and then the market just keeps pushing this further out… You want to break the glass,” said one former Fed official familiar with the debate. From that point on “if inflation stays low you can be in a little bit less of a rush… You don’t have to go every meeting.”
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