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Investors expect an interest rate increase of 0.75 percentage points

If the Federal Reserve goes ahead and raises its reference rate on Wednesday by 0.75 percentage points, as markets now expect, one of the biggest questions will be what has changed since the first week of June, when many members of the Federal Open Market Committee set interest rates. signaled plans to raise interest rates at this meeting by half a percentage point.

Officials have had two disappointing data since then: last Friday, the consumer price index showed that inflation deteriorated more than expected. And recent consumer surveys on inflation expectations, which are widely monitored by economists because they believe such expectations may be self-fulfilling, have increased.

So is it enough for the Fed to call an audible and leave its recent and unusually precise guidance? One thing is that in recent months, the Fed has mapped out a policy course that initially appeared to be aggressive for central bank officials, “but so soon after the meeting, [the Fed] appears to be behind the curve, Ellen Meade, a former senior Fed adviser, said in an interview Tuesday. “So one way to get ahead this time is to tee up a 75.”[ads1];

Think about what happened to the Fed late last year. In December, the Fed accelerated its plans to phase down, or downsize, asset purchases. Fed Chairman Jerome Powell explained after the meeting that during the “blackout” period before the pre-meeting in November, when the Fed announced its initial downsizing strategy, there was a wage growth report that he found disturbing.

Mr. Powell said he first thought of speeding up the downsizing, but he chose not to do so because they had not “socialized” this more aggressive plan with markets. In the weeks after the meeting, inflation and employment data essentially made him regret the decision, and officials therefore telegraphed plans to speed things up three weeks before the December meeting.

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