Jerome Powell owes us an explanation. The Federal Reserve chairman this week confirmed what investors already had guessed: Surprisingly persistent inflation is dissuading the Fed from cutting its short-term policy rate as soon and perhaps as quickly as Wall Street had hoped.
It’s the right call. The Fed committed its worst error in 40 years when it acted far too slowly to tame inflation following the pandemic. Its institutional credibility—on which hangs a lot in a fiat-money system—now depends on Mr. Powell’s success in suppressing that inflation.
As recently as December, with consumer-price inflation about 4% and the Fed’s preferred personal-consumption-expenditure inflation rate at around 3% (both excluding food and energy), central-bank officials signaled they were on track for at least three rate cuts this year.
The Fed believed it had set inflation on a permanent glide path toward its 2% target.
The central bank believes it can talk markets into doing what it wants by telegraphing what the Fed plans to do.
The primary model, known as FRBUS is flawed. deeply flawed. It doesn’t adequately account for the effects of fiscal policy, such as the $10 trillion in cumulative deficit spending since the start of 2020, constituting subsidies and other expenditures Congress and successive administrations pumped into the economy.
The model didn’t predict the inflationary consumption explosion of that era, and probably has way overstated the (largely illusory) benefits of government infrastructure spending for future productivity and economic growth. The model chronically misunderstands the labor market, and overestimates the effect of a tight labor market on inflation.
Because they're liars and thieves.
@QuaintCamelLibertarian2wks2W
This should be easy. The Fed has a dual mandate - employment and price stability.
How are prices? Over 2%
How is employment? Good
Easy, no rate cuts.
@ZebraAutumnMountain2wks2W
Perhaps the Fed should remember that sometimes the best way to know what the weather is outside is to ignore the forecasts and look out the window.
@KingdomBobcatVeteran2wks2W
This misses the single biggest factor driving inflation. Quantitative Easing (QE), whereby the fed purchases treasuries and thereby prints money, is the single most inflationary policy in the history of the fed. From 2020-2022 the Fed created over 8 trillion extra dollars. This represents at least a 20 % increase in the monetary supply (which has never been done in the history of the US in so short a time). Milton Friedman said it best "Inflation is always and everywhere a monetary phenomenon, in that it is and can only be produced by a more rapid increase in the quantity of money than in output".
@AnteaterAudreySocialist2wks2W
"Why Is the Federal Reserve Always Surprised by Inflation?"
Here is a guess---because the Fed doesn't do the weekly grocery shopping?
@ISIDEWITH2wks2W
@ISIDEWITH2wks2W
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