I have been writing, indeed many times, about the challenge of allocating responsibility for the sharp and persistent increase in inflation to supply- and demand-driven forces. Their relative roles are relevant to—indeed, effectively determine—what monetary policy can and cannot achieve and, therefore, are relevant to what the appropriate monetary policy response is. Here I focus […]
Author: Larry Meyer
The “hawkishness” of successive hawkish holds is subject to diminishing returns. But we see virtually no chance of a September hike. That’s the overwhelming consensus on the FOMC and all will agree, or at least not object, to that decision. In any case, the markets insist. Most on the Committee see the rate hikes as over […]
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Inflation Monitor: February PCE
Today’s personal income and outlays report confirmed that inflation remained very high in February, of course. Core PCE prices increased 0.35% in February, which corresponds to an annualized rate of over 4%. But that still represents a decent moderation compared to the previous four months, each of which saw an increase of 0.5%. It was […]
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Inflation Monitor: February CPI
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The minutes didn’t contain anything to meaningfully change our views. We said after CPI (and Bullard’s market-moving remarks) that it’s a close call between whether March liftoff will be 25 basis points or 50 basis points, but we think the former is still more likely. There was nothing in the minutes to suggest that they […]
In the empirical inertial Phillips curve I use today, price inflation does not depend on wage inflation, but rather the unemployment rate gap, lagged inflation, and inflation expectations. And this is what I see as the conventional specification of the Phillips curve today. However, that’s a dramatic break from how I thought about inflation dynamics […]
Yes, the FOMC is behind the curve. A dangerous place to be, especially if the FOMC is very far behind the curve, as I believe is the case today. When that happens, the probability of recession is higher. On Friday, following the jobs report, we indicated that the risks to our call were more firmly […]
I have long said that forecasting the inflation rate of 2022 would be difficult. Still, inflation (both actual and forecasted) will determine the timing of liftoff. Inflation in 2022 will depend on not only underlying inflation (whatever that is today) but also the persistence of various temporary factors, such as supply shortages and reopening demand. […]
While the new policy framework calls for overshooting the 2% inflation objective after a period of persistent undershooting, it does not explicitly describe the conduct of monetary policy once the overshoot has been achieved and the Committee wants to move inflation back to 2%. Clarida’s Policy Rule for the New FrameworkClarida has said, “Consistent with […]
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Is There AIT in FAIT?
My focus here is whether FOMC’s new framework, Flexible Average Inflation Targeting, or FAIT, is really focused on achieving an average inflation rate of 2%. That is, is there AIT in FAIT? The word “average” is, to be sure, in the name of the new framework and appears in many discussions by FOMC participants of […]