On Wednesday, the Federal Reserve released the minutes of the September 25-26 quarterly meeting of the Federal Open Market Committee (FOMC).  The summary showed that officials anticipate the meeting’s (quarter percent) rate hike to the central bank’s benchmark federal funds rate target to be followed by another increase at the end of the year, and at least three more in 2019.  Fed officials continue to describe interest rates below a neutral rate that will neither stimulate nor depress economic activity, but dropped the term “accommodative” as a descriptor for these low rates.  This is a continuation of what has been a good start for the Fed in its attempt to normalize monetary policy. Notwithstanding criticisms from politicians on both sides of the political aisle, the central bank should at the very least continue on its present course.  The sheer enormity of the Fed’s expansionary policy in the wake of the 2008 financial crisis makes it all but certain that there will be a correction eventually, but continuing to normalize now will at least speed the re-calibration that is to come.

The Fed’s September increase continues the tightening that has been the Fed’s policy since late 2015.  In the fourth quarter of that year, nominal interest rates were near zero, and, even with negligible inflation, real rates had turned negative.  Today, the target federal funds rate is just over 2%.

The two percent level is on par with the moderate rate of inflation in the economy — inflation stands at just over 2% for Q3 2018, and two percent inflation is the Fed’s target rate (theoretically, at least) for accomplishing its dual mandate of balancing inflation and unemployment.