One risk of waiting is that the Committee may be forced to raise rates very quickly to prevent an increase in inflation. In so doing, this may create unnecessary volatility and a rapid tightening of financial conditions – either of which could be disruptive to the economy. This would represent a return of the so-called “go-stop” policies of the past.
Such language was used to describe episodes when the Fed was aggressively providing monetary accommodation to stimulate employment and the economy – the go phase – only to find itself forced to apply the brakes abruptly to prevent a rapid uptick in inflation – the stop phase. This approach to policy led to more volatility and was more disruptive than many found desirable.