Summary: The Fed Governors told us they planned to raise rates, and months ago told us when they would do so. But their explanation of why they raised rates makes little sense. We can see their thinking by looking at the economic projections released at the Open Market Committee meetings. They raised rates not because the economy was accelerating to “take-off” speed, but because it was not.
After a year of waffling and flip-flopping, the Fed finally decided to raise rates, a decision that had the surprise of a sunrise. Yet there is a behind-the-curtain drama of clashing hopes and fears by the Fed’s governors and staff. This conflict does not appear in their statements or press conferences, but in their economic projections. Let’s start with their hope for continued economic growth: the predictions released yesterday for GDP and the fed funds rate.