Fed Faces Balancing Act in Gradual Policy Changes Aimed at Long-Term Inflation Goal

• Fed needs to take cautious approach when cutting interest rates due to balancing act between easing too soon or too late • Inflation falling but still high; labor market still strong • Restoring 2% inflation target may require gradual policy adjustments over time • Further policy adjustments can aim to sustainably return inflation to 2% while maintaining strong job market • Risk of easing too much/soon could entrench high inflation; risk of easing too late could harm economy