After more than two years of high inflation, the Federal Reserve finally has inflation back on target. The Personal Consumption Expenditures Price Index (PCEPI) has grown at a continuously compounding annual rate of 2.1 percent over the last three months, new data from the Bureau of Economic Analysis shows. Bond markets are pricing in roughly 2 percent PCEPI inflation per year over the next five years.

Some—including some Fed officials—are reluctant to accept the good news. And their reluctance is understandable. Annual inflation rates remain high. The PCEPI grew 3.2 percent over the last year. Core PCEPI, which excludes volatile food and energy prices, grew 4.2 percent. However, these high rates largely reflect price increases that occurred months ago. Those distant price increases should not be used to justify further rate hikes today.

An analogy serves to illustrate. Suppose you decelerate from 45 MPH to 20 MPH while approaching a school zone in your car. When you reach the school zone, you look down at your odometer and see that you are going 20 MPH. At that point, you do not stomp on the brake just because you have averaged 35 MPH over the last quarter mile. Of course your average over the last quarter mile is greater than your 20 MPH target: you were decelerating to hit that target. What matters now is not how fast you were going, but how fast you are going.

Likewise, the Fed is aiming for 2 percent inflation. Now, inflation is back around 2 percent. The Fed should not raise rates further just because inflation was higher months ago. What matters now is not how fast prices were rising, but how fast they are rising now.