There is also uncertainty over how tight policy actually is. Researchers at the San Francisco Fed recently tried to capture the effect of the Fed's forward guidance and reductions to its balance sheet, and concluded that monetary policy is actually tighter now than the Fed funds rate suggests.That could feed into arguments that the economy and labor markets are poised to weaken next year, easing inflation pressures.
"The Fed wants financial market conditions to be tighter," said Oxford Economics' Ryan Sweet, because that is how the Fed slows the economy and brings down inflation, a process that will likely also include an increase in unemployment. "They are getting a little frustrated." Meanwhile, unemployment has stayed at a low 3.7%, below where Fed policymakers had thought it would be as tighter policy slowed the economy.Part of the reason the Fed may be more comfortable with easing financial conditions now than in the summer is simply that the Fed has already raised interest rates by nearly 4 percentage points.