Why Critics Fear the Fed’s Policy Shift May Prove Late and Abrupt

That caused the Fed to change course late last year — and to do so fairly abruptly.

“Inflation really popped up in the late spring last year, and we had a view — it was very, very widely held in the forecasting community — that this would be temporary,” Mr. Powell said in December. But officials grew more concerned as employment cost data moved higher and inflation indicators showed hot readings, he said, so they pivoted on policy.

“It was essentially higher inflation and faster, turns out much faster, progress in the labor market,” Mr. Powell said.

Asset prices have been jerking around in recent weeks as investors try to make sense of the Fed’s new stance and what it will mean for the economy. Stocks have generally slumped, Bitcoin prices have fallen, and bond prices have been increasing as part of the cacophony.

Had the Fed changed course earlier, “there wouldn’t be this sense that the Fed is behind the curve, and this fear in the market that they are going to go aggressively,” Ms. Markowska at Jefferies said.

Part of the challenge is that while the central bank had clearly detailed a plan for when it would slow bond-buying and lift rates — emphasizing what conditions it would want to see — it has not been as clear about its follow-up moves.

Mr. El-Erian thinks that the Fed should promptly stop buying bonds while clearly signaling the path ahead for rate increases. Otherwise, he said, officials risk having to pull back support all at once later this year.

But there are also arguments for gradualism.

Foreign economic officials are nervously eyeing the Fed’s path, especially when other central banks are also pulling back support amid a widespread burst in prices — the Bank of England, for instance, has already raised interest rates. When big economies raise domestic borrowing costs, it can cause capital to flow away from emerging markets, roiling exchange rates and damaging or destabilizing their economic growth.

“If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers,” President Xi Jinping of China said during a speech this month, warning of “challenges to global economic and financial stability.”