The Fed no longer believes there needs to be major economic pain to keep the economy on the pathway to low inflation.
Interest rates may well be higher for longer than seemed likely before the meeting — and bond markets have priced in exactly that over the last 22 hours. But Fed officials have backed away from their mindset that a significant slump is necessary to vanquish inflation.
The Fed's communications yesterday were "superficially more hawkish, structurally more dovish," as Skanda Amaranth of Employ America put it.
The superficially hawkish side came in the form of new projections that show 12 of 19 top Fed officials anticipate raising interest rates one more time this year, and a majority envision keeping rates above 5% throughout 2024.
The structurally dovish tone came in economic projections. Fed officials now see the same glide path toward their 2% inflation target that they did in June, but see it coinciding with firmer growth and a healthier labor market.
The median outlook sees 2.1% growth this year, 1.5% growth next year, and the jobless rate rising only to a mere 4.1% (it's currently 3.8%).
Between the lines: Fed leadership has gained confidence that the disinflation process can occur through channels other than mass job losses and a serious downturn in overall activity.
Supply chains keep healing, relieving some inflation pressure. Companies have cut back job openings, helping take the air out of the job market without widespread layoffs. More people have entered the labor force.
We've run out of other people's Social Security taxes needed to subsidize our low income tax rates.
