Fed Watching: “One and Done”? Why?

Fed watchers have stepped up speculation regarding possible Fed action in December.  The consensus appears to be moving toward a “one and done” theory, whereby the Fed would introduce a modest increase in interest rates in December and then do nothing further for an extended period.

Does this make sense?

If the Fed is increasing interest rates to offset a strengthening in the economy, rising prices and labor shortages that lead to wage increases, is a one time tweak going to do the job?  If the perceived strengthening in the economy is too fragile to support the more traditional approach of a series of interest rate increases, is any increase in interest rates appropriate?

If the Fed’s primary objectives remain “full employment”, inflation on the order of 2% and moderate long term interest rates, what does a “one and done” approach to short term interest rates accomplish?

No matter what the Fed decides for December, the explanations are likely to be interesting, but not necessarily informative.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®