The NYT told readers:

“The Federal Reserve has said that it expects to raise interest rates sometime soon, given evidence over the last year that economic growth is picking up.”

This undoubtedly had people wondering what the paper could have in mind. GDP growth has averaged less than 1.7 percent over the last three quarters. While employment growth has remained strong, the pace has slowed in recent months. Wages are barely keeping pace with inflation, with no sign of acceleration. Housing starts have picked up, but non-residential investment has been virtually flat.

In short, we are not looking at a story of the Fed raising rates in an economy that is picking up steam, rather the Fed seems to have lowered its expectations so that it is now prepared to raise rates and slow growth in an economy that is operating well below almost everyone’s estimates of potential GDP. What has changed is the Fed’s perceptions of an acceptable level of GDP and employment, not the economy.