Fed may be two meetings away from policy mistake

Playing it safe: People ride scooters past the Federal Reserve building in Washington DC. Part of its hesitancy to cut rates is its lack of confidence that inflation will continue to decline to the 2% target rather than just settle at a stable 2.5% to 3%. — Bloomberg

THE US inflation rate, which had surged to over 9% two years ago, is now around 3%. Based on current trends, it should settle at 2.5% to 3%, a range that most economists would deem consistent with financial stability, including a firm anchoring of inflationary expectations.

This good news would normally open the window for the central bank to cut interest rates when the Federal Open Market Committee (FOMC), its top policy body, meets next week, given indications that the US economy is slowing more rapidly than many had expected.