The Federal Open Market Committee (FOMC) will be gathering next week to take stock of monetary policy. The outcome is nearly a forgone conclusion: Fed Chairman Jerome Powell hinted strongly that half-point interest rate increases were “on the table” for the June and July meetings.

But how far will the Fed have to go to get the desired outcome? Can they steer to a soft landing, or will a recession be required to change the course of inflation? And how will they use their balance sheet to manage liquidity in the system?

Projected Fed Funds Rate Chart

Following are additional details on the factors the group will consider, with both sides of each issue presented. Elements that would lead to tighter policy are categorized in the “More Hawkish” column; factors that might suggest a more lenient path are detailed in the “Less Hawkish” column.

Economic Growth

More Hawkish

Less Hawkish

As of the second quarter of 2021, U.S. gross domestic product (GDP) returned to its pre-pandemic level, and continued growing from there. The pandemic damage has largely been undone, and an accommodative posture is no longer necessary. Sections of the economy, like housing and durable goods, are overheated, and higher rates may encourage a soft landing.

The Ukraine conflict brought about higher energy prices that are weighing on growth prospects. Equity and bond markets have had a difficult start to the year. First quarter GDP registered a contraction, suggesting the economy remains out of equilibrium. Concerns of an imminent recession are rising, and a more accommodative policy could help defuse tensions.


The past year brought growth and recovery from the pandemic that was better than expected. However, the recovery was uneven; some sectors (like transportation) were unable to keep up with demand, while others (like business travel) remain weakened. The Fed has an important role to play in setting a path toward sustainable growth.

The Fed has changed their posture very rapidly in just six months; thus far, their shift has not impaired growth. The economy has recovered well but is in a precarious state. FOMC members will have many important considerations as they cast their votes.