I am just an Okie outsider, not privy to the forecasts and deliberations of the FOMC. But I do know these things (1) Output is still growing and unemployment is not rising. (2) Inflation is rising (3) The last time our monetary authority accomodated energy price increases in a big way didn't work out so well.
On point (1): Unemployment was steady at 4.7% last month and new jobs went up by 94,000. Third quarter real GDP growth was above 4% and productivity rose by 6.3% in that quarter. Even industrial production rebounded from its October fall to post a November gain.
On point (2) CPI inflation was .8% in November and is running at over 4% for the last 12 months and over 5% (annualized) for the last three months. Even "core" inflation is rising and rising faster than predicted. The real return on 10 year t-bonds is slightly negative now.
On point (3) of course I am refering to the stagflating 70s.
So either the Fed is making mistakes, or is being politically pressured into this policy path knowing it's probably a mistake, or the Fed foresees something really really bad in the near future that it doesn't want to talk about publically.
I am not sure which of these three scenarios I hope is the correct one.
Update: This well reasoned gentleman has a slightly different view of the situation.