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Question On When To Slow Rate Hikes and When To Stop

  • Q: How do you know when to slow down rate hikes and when to stop?
  • A: My main message has not changed since Jackson Hole: the FOMC is resolved to bring inflation down and we will keep at it until the job is done.
  • The overarching focus is getting inflation down to 2%. We'll need to do two things in particular: achieve a period of growth below trend, and softening in labor market conditions.
  • FOMC forecast shows growth running below potential this year and next. So far only modest evidence that labor market is cooling off.
  • We'll need to bring the funds rate to a restrictive level and keep it there for some time.
  • We'll want clear evidence that inflation is moving back down to 2%.
  • In terms of reducing rates, we'd want to be very confident that inflation is moving back down to 2% before we would consider that.

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