The Fed delivers another jumbo rate rise, and it’s far from done

There is a good chance it will keep rates high for longer than investors expect

AS RECENTLY AS the start of June investors and analysts believed that a “jumbo” interest-rate rise for the Federal Reserve meant half a percentage point. How quaint. After four straight increases of three-quarters of a percentage point—the latest on November 2nd—perceptions have changed. Indeed, a stockmarket rally in the two weeks before the announcement was rooted in the belief that the Fed may scale down to a half-point rate increase at its next meeting in December. What was once jumbo is now moderate.

Whether the Fed will in fact downshift to a half-point increase is a matter for debate. Bond pricing assigns roughly even odds to the central bank opting for that smaller increment versus yet another three-quarter-point increase. At a news conference following the Fed’s latest move, Jerome Powell, the central bank’s chairman, resisted tipping his hand in either direction. And for good reason: inflation figures for both October and November will be published before the Fed’s next meeting, and go a long way to determining what it does. There is little sense in guessing the outcome before seeing that data.

But the focus on the size of the rise is also too narrow. As Mr Powell notes, the Fed’s tightening of monetary policy can be looked at in three dimensions: how quickly it raises…