Cutting rates further risks overstimulating demand, when inflation remains stubbornly above the Fed’s two-percent target.

The Federal Open Market Committee (FOMC) is expected to leave its interest rate target unchanged at 3.5 to 3.75 percent at this week’s January meeting. After a series of rate cuts in the second half of last year, and a continued push for further easing, a pause may feel anticlimactic. But the leading monetary policy rules suggest another cut would be a mistake.

The latest Monetary Rules Report from AIER’s Sound Money Project shows that the Fed’s current policy rate now sits below the range suggested by several well-known rules. Most of the rules point to an appropriate policy rate somewhere between 3.85 and 4.25 percent, depending on how one weighs inflation, employment, and overall spending in the economy. In that context, additional rate cuts would go beyond what current economic conditions justify.

Why Stop Here?Why Stop Here?

What the Rules SayWhat the Rules Say

What This Means for Monetary PolicyWhat This Means for Monetary Policy

Looking AheadLooking Ahead

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