Over the past year, we have taken forceful actions to tighten the stance of monetary policy. We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do.

– Fed Chair Jerome Powell, 7 March 2023

Following Chair Powell’s testimony this week, the Fed is seemingly finding itself once again on the back foot and having to chase market expectations for future rate increases higher still. In this Economics Weekly, we discuss how the Fed is now in a more precarious situation. With policy already moderately tight and plenty of data still pointing to a recession, it is being whipsawed by its policy of data dependency, at a time when that data has been particularly noisy. It has also been subject to one of the age-old problems for central bankers—time inconsistency—which has made policy choices a little trickier.

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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.