The Precedents....

The lower r* or natural or neutral real rate of interest or borrowing cost because of lower historical inflation and inflation expectations would further reinforce lower inflation expectations due to higher supply as experienced by the US, but after full employment and higher w* or natural or neutral real wage rate could increase wage cost inflation and prices and expectations which could result in higher demand and higher price and price expectations... Still the Fed needs to decide whether it wants to increase demand and supply, both, upto full employment. Nonetheless, if the Fed goes for higher demand, supply and prices and inflation and expectations it would reinforce demand and supply negatively… When prices would go up it would be a precedent for lower prices in the future or lower price expectations because of higher interest rate and expectations, the reverse would set a precedent for higher price expectations which results in boom and busts and trade cycles as put by the Knife-edge problem... Nonetheless, attempts to contain prices at full employment has been the goal for economic policies, but when intervention is made it produces cycle in the opposite and the economy moves from booms to bust to boom within the accepted price or inflation targets or bands set by the central bank in the time frame, same as in the stock market... The stock prices (too) are free to move within the price bands due to changes in demand and supply and normally prices may move 10% up and down in a day, but in some cases they may change 20%... It is true that prices help increase or lower demand or supply to clear the market which is also true for the labour market and other markets, as well. Higher supply lowers prices which increases demand and prices and higher demand increases prices and then supply... The market moves between higher supply and higher demand and between lower prices and higher prices... Lower and higher prices help clear excess supply and demand, since at lower prices people demand more and at higher prices people supply more which are the precedent for each other... Notwithstanding, if the Fed tries to stabilize or prices at the full employment by effective rate guidance people would stop investment and demand because of higher interest rate and interest rate expectations following its price band... The prices at lower end would increase rate cut and rate cut expectations and at higher end it would increase interest rate and interest rate expectations to curb volatility and maintain price stability at full employment… A too narrow price band would imply frequent changes in the monetary policy stance… and could deter demand and supply adjustments and growth…

The Fed has consistently underscored that rate hikes would be gradual under the argument that savings needs to be encouraged with higher nominal interest rates and expectations due to higher inflation and inflation expectations which increases savings and lowers spending due to inflation and expectations that would also lower interest rate and interest rate expectations that is against the expectations... the Fed wants to carve... higher inflation and inflation expectations and lower real interest rate and expectations, but that would lower savings and investment and increase unemployment and lower growth.... If the Fed creates lower nominal interest rate and expectations, but higher real interest rate and expectations due to higher supply and lower prices it would increase demand - employment, consumption, savings and investment - and growth and higher inflation expectations also because of higher demand and expectations...