Part 10/12:
Given these dynamics, the Federal Reserve faces a challenging dilemma. Risks to inflation are skewed to the upside, while those to employment lean toward the downside. The dual mandate—to foster maximum employment and stable prices—requires careful navigation.
Currently, the policy rate is approximately 100 basis points closer to what the Fed considers neutral than it was a year ago, allowing some room for adjustment. The stability in labor market metrics provides cushion for policymakers to proceed cautiously. Nonetheless, the restrictive policy stance adopted thus far means that any policy shifts will be data-driven, dependent on ongoing assessments of economic indicators and risks.