Most Federal Reserve officials agree on the path for interest rates over roughly the next year: proceed with gradual increases until borrowing costs reach a level that neither slows nor spurs growth.
The big question, however, is what to do after getting to that so-called neutral setting. The answer will largely depend on how inflation behaves as unemployment falls, and they are poring over recent research for clues.
The Fed should stop agonizing and being namby-pamby. If it wants a 2% basic inflation rate, the rate it says is consistent with growth neutrality, as its existing goal stands, the Fed should set its benchmark rates at levels historically consistent with that rate of inflation, accept that inflation will fluctuate around that level, and then sit down and be quiet.
Those historically consistent rates are the Goldilocks level—or more accurately, the Goldilocks band.