If the Fed starts raising interest rates by 25 basis points at each FOMC meeting from March 2021 instead of March 2022, the guidance range for policy rates will now be 3.5-3.75%. The latest rate hike has risen to 3.75-4.0%, and the Fed is finally no longer "behind" the curve on inflation.

Gu Chaoming of Nomura Securities believes that there are at least two reasons why Powell may slow the pace of tightening.One is that raising interest rates at a smaller pace can prevent excessive tightening when the policy rate is close to the final rate. Another reason is that changes in policy rates usually take about six months to pass on to the real economy, and the Fed needs to properly assess the impact of interest rate hikes.

But Powell also said that although the Fed may slow the pace of raising interest rates, it is still impossible to suspend or even cut interest rates. Because even if the policy interest rate is at the current level, monetary policy is still not strict enough. The Chicago Fed's US Financial conditions Index (NFCI) provides evidence for this view. The index is compiled from 105 financial indicators.

When the index starts in 1971, a value greater than 0 means that financial conditions are more restrictive than in the past 50 years. Less than 0 means looser financial conditions. With the current phase of austerity, NFCI climbed to-0.03 in the first half of October, but still failed to exceed zero. The index, released on November 16th, was-0.20, indicating that financial conditions have become even looser and that monetary policy has not yet entered a stage of substantial tightening.

Past experience suggests that this will require the Fed to continue to tighten until bank lending slows significantly and the index rises to positive levels. That is why Chairman Powell has repeatedly stressed that the current policy interest rates are not high enough to contain inflation and that further tightening is needed.