Inflation and U.S. Monetary Policy
I am cautiously optimistic about inflation stepping down notably in the United States this year and next without a recession. The Federal Reserve is key to a 'soft landing, but it is not the only game in town. Congress and the White House have a role to play, particularly in lowering gas and energy prices. Lower tariffs and more immigration would help immediately too. Consumers would also need to become more price-sensitive and slow down their buying of some goods and services. And above all, we must get the global pandemic under control and freedom restored in Ukraine. We need skill among policymakers and some luck.
If anybody can get us across the finish line, it’s today’s Fed, White House, and Congress who have gotten us this far. It’s time to bring the recovery on home. Let’s do it!
Below is a video of a talk today on inflation and Fed policy. It was a private event, so I recorded this video at home. My slides are below the video.
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The views here are my own and do not represent anyone else.
I wonder if you have any thoughts about why the fed didn’t start pulling back earlier. The first Biden relief package and the infrastructure bill removed the need for central bank stimulus and the sky high stock market indicated interest rates were too low. They could have started pulling back right after passage off the infrastructure bill and we’d be in much better shape today. Don’t you think? I think everyone was just too much of the mindset of not wanting to pull the punch bowl away.
Is there a political pressure by WH on Fed to act on inflation (i know inflation is complex thing and its naive to think that CB can "control" it)?
I am not an economist. But i like to see rate hikes slowly and steadily. Raise 25-50 bps and observe how economy reacts. It's similar to goldilocks approach of economy and letting it to adjust to rate hikes. If economy starts getting cold, labor market worsens, than pause the rate hikes and let economy adjust. If everything works out, the economy (hopefully) will adjust with rate hikes and labour market will remain healthy. Last thing we need is an attempt to quickly bring down inflation in next 6 months and in the process throwing economy back into recession.
One last thing. How do you see the future of fiscal policy? Is BBBA a dead duck? BBBA had provisions to structurally transform US economy including measures to tackle Climate change etc. Is there a hope to work on these agendas in present environment (when policy makers think economy in overheated)?