The projections by the Fed governors will always paint a rosy picture. They’re instructed to condition their view on an optimal monetary policy, which obviously makes better outcomes achievable.
In the real world, as has been demonstrated over the past year, policy is often far from that ideal, so actual results will usually be worse than implied by the projections.
Admitting that a recession would be required to get inflation in check might undercut public support for a tighter monetary policy. It also could subject the Fed to criticism that might ultimately undermine its independence or cause Congress to limit its authority in the future.
Fed is committed to bringing inflation down to its 2% annual rate target.
Powell made it clear in his remarks at the Jackson Hole conference in August that this goal was “unconditional” and reiterated his commitment at his September news conference.
Failure is an unattractive option because inflation expectations would rise, necessitating a harsher monetary policy and worse outcomes later.
To bring inflation to 2%, the Federal Open Market Committee will have to push up the unemployment rate substantially. The labor market is much too tight to be consistent with a stable or declining underlying inflation rate.
Bill Dudley Bloomberg 16 november 2022