Statement | Economic Growth

News from EPI Fed decision to keep interest rates unchanged was the right one

Today’s decision by the Federal Reserve to keep interest rates unchanged was the right one. There is no sign in the economic data that a durable acceleration in inflationary pressures is brewing and needs to be stopped by the Fed beginning to slow the economy. On the contrary, the still-damaged labor market continues to be an important drag on overall price growth, keeping the economy from reaching the 2 percent price inflation target set by the Fed. Finally, it is important that the Fed allow not only a return to target levels of wage growth and price inflation, but a period of above-target wage and price inflation. If they do not do this, they will convince households and financial markets that their inflation target is a hard ceiling, not a long-run average. This will make fighting future recessions much harder, and will solidify today’s still sub-par economic performance as the “new normal.” We don’t need to settle for that, and today’s decision to forego another rate increase is an encouraging sign in this regard.

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