Financial conditions have tightened around 125bp since last year on the strength of the Fed’s forward guidance alone, long before any hikes have even materialised, showing that the markets are indeed highly anticipatory and responsive towards the Fed. On the other hand, many today doubt the responsiveness of the markets and are not even sure whether a series of 25 or 50bp hikes would be enough to tame this particular episode of inflation.
Are you trying to get a job at the Fed? This is an awful take.
The Fed is a de facto welfare/jobs program for over educated academics. They deserve to be held accountable to their performance like the rest of us.
The last thing we need is more authoritarian finance regimes via fiscal and monetary policy coordination. Each recession intervention sets the condition for the next recession.
I see no reason to cut the Fed slack when they are so often behind-the-ball in ways that other economists point out at the time. They used the dual-mandate as an excuse for their errors during the Great Recession (despite Bernanke admitting to Milton Friedman that the Fed was to blame for the Great Depression), and now they are repeating the opposite error of letting inflation get out of hand. Previously the supposed 2% inflation rate target had been treated like a ceiling as they would tighten whenever it seemed to go above but do nothing when it was persistently below. Now they gave up on "average" inflation targeting by saying they would not go below average to correct for periods of overshoot. A price level target would better enable people to make long run predictions by correcting for errors in either direction. But better than that would be an NGDP level target so as not to crush the economy if a supply shock increases inflation.
Additionally, monetary policy dominates fiscal policy (setting aside cases where an insolvent government forces their central bank to engage in hyperinflation). That's why the so-called "fiscal cliff" preceded economic growth whereas the stimulus bills prior to that didn't cause any budge in the TIPS spread. It's also called "monetary offset".
I have grave doubts about "forward guidance" about the use of instruments. What the Fed needs to do is re-explain its target, getting PCE inflation down to 2% (which in practice means to get the TIPS expectations down to ~2.3%. It's OK for the Fed to model which movements of which instruments -- ST interest rates, QR, IOR. whatever -- will achieve reaching the target and I guess there is no harm in sharing the results of that model with markets. But since the results of the model are going to be different every time the Board meets everyone should expect this "forward guidance" to change.
Is the article paid by FED. FED has failed miserably - biggest manipulation was Transitory inflation and this lie will prove fatal to the economy. Inflation at 8.4% and OCR at 0.25% ......or even if raised by 0.5% to 0.75%....... Can anyone justify it.
FED has to take bold step and bloodbath cannot be avoided though can delay but more the delay deadlier it will be.
.......not even sure whether a series of 25 or 50bp hikes would be enough to tame this particular episode of inflation......
You are correct as the need is not 0.25% or 0.50% but rise to justify inflation in double digit. N next few months, should be between 2% to 3%....Will their be a reaction in the market, yes but will be better than now.......slow death.
Bloodbath cannot be avoided and before economy boom, will have to face doom, managed is better...