What Should The Fed Do?

I first wrote last fall when the tightening cycle began that I thought they would stop between 2.75% and 3.50. Shortly there after I tightened up and wrote that I thought they should stop at 3.00%-3.25%. For a while it looked like I'd be wrong by a lot and then things changed a little and yesterday things may have changed a lot.

Stopping at 3.25% is now not impossible, unlikely but not impossible. 3.50% has a good chance of being the stopping point. Tuesday night on CNBC Asia I said I'd like to see them stop at 3.5% and that if the ten year can stop at 3.80% or 3.90% we'd be in decent shape.

The Fed's mandate pertains to inflation. So is there inflation? Does it need to be aggressively contained? To me this is the conundrum. Core PPI and CPI are not capturing where inflation is the highest. We are paying more at the pump (yes I realize by definition core excludes energy) and more for health care, a lot more.

Since these increases have not spilled over into the other parts of the economy (yet?) and all of the data points directly dealing with economic growth have been underwhelming I would like to see them stop now. It takes six months or so for rate increases to make their way into the economy. Stopping or pausing now allows the last couple of hikes to have their impact on an economy that shows signs of slowing.