Tom Barkin, Essay: Why We Care About Inflation

“You might ask if this path requires a Volcker-like recession. Not necessarily. At 83 basis points (the current EFFR), we are still far from the level of interest rates that constrains the economy; for my colleagues on the FOMC, this neutral rate is in the range of 2-3 percent. And before the Great Recession, the economy handled rates even higher than that. Once we get in the range of the neutral rate (approximately 2.50%), we can then determine whether inflation remains at a level that requires us to put the brakes on the economy or not.”