Outside the Box: Inflation needs to get back to 2%, but the Fed won’t do what it takes. We’re paying a high price — literally.

by | Feb 22, 2023 | Stock Market

Ever since U.S. inflation began to go wild, we have existed in an environment that in many ways hasn’t make any sense. In the first place the Federal Reserve had promised that it would corral inflation around the 2% mark, and then it failed to do that. After having a period from 2012, when it adopted targeting, through 2019 when inflation consistently but mildly undershot its target, the Fed changed its objective to allow inflation to run a little bit hot relative to its 2% target and then strangely, it promised forbearance on raising rates until the economy had achieved full employment.

These changes represented heresy with respect to the monetary rules that were the backbone of good monetary policy.   Bad to the bone These were changes in the Fed’s operating procedures that many economists were opposed to and that, at the time, didn’t make a lot of sense. In retrospect, upon greater reflection, they make no sense whatsoever. These are the rule changes behind the Fed’s decision to allow inflation to run hot and to not oppose it. As inflation ran high, in 2021 the Fed was in denial. It was under pressure from progressives to be “less preemptive.” Plus, Chair Jerome Powell’s term was en …

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