Peter Morici: The Fed should keep hiking rates, but talk about it less

by | Dec 7, 2022 | Stock Market

Federal Reserve policy makers should not waver in their pursuit of 2% inflation but talk less about it.   As measured year-over-year by the consumer price index, inflation slowed from 9.1% in June to 7.7% in October but the Fed faces tough challenges beyond the reach of monetary policy.

Sanctions on Russian oil exports may instigate tighter petroleum supplies, the war in Ukraine is already squeezing grain and fertilizer markets, climate change is disrupting global agriculture, and transportation networks and electric vehicles will require prodigious amounts of lithium and other scarce metals China’s ambitions in the Pacific, industrial policies, and strict COVID policies are inspiring a decoupling of U.S.-Chinese commerce.  Supply-side inflation Overall, about half of the recent surge in inflation may attributed to supply-side issues. Yet, Fed Chairman Jerome Powell recently asserted “We have the tools that we need and the resolve it will take to restore price stability.” It would be curious to know how the Fed raising interest rates can bring peace to the Ukraine, remove CO2 from the atmosphere, speed up mine and smelting investments, and alter China’s imperial ambitions. Since Ben Bernanke, the Fed has tried to be more transparent about its intentions. Policy surprises beget instability in financial markets and upset planning by businesses and households, but transparency can create more havoc when communications are tentative or inconsistent.Lousy crystal ball The Fed cannot know where it is going next month or next year without knowing where inflationary pressures will persist or subside. Along with Treasury Department, it’s not any better than private analysts at anticipating wars, weather patterns, th …

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