Hive Exclusives Monetary Policy & Inflation | US
The Fed Has Fallen into a Time Inconsistency Trap, Can it Recover?
By Dominique Dwor-Frecaut and Jon Turek
(4 min read)
The June FOMC meeting turned out more hawkish than we expected, which reflects both a change in the Fed economic assessment and its reaction function. In the presser, Chair Powell was very confident on the prospects for a strong recovery. He repeated many times that ‘we are on a path to a very strong labor market’.
In addition, the FOMC has become more concerned by the risk of de-anchoring of inflation mainly due to the high April and May inflation prints. Chair Powell repeatedly implied that the Fed would not hesitate to tighten policy if inflation expectations de-anchored. Finally, he conveyed greater confidence that the Fed can lift inflation: ‘I have more confidence that we could see inflation above 2 percent, that it may not be as hard to do that as we thought, and that inflation expectations may move up’.
The June FOMC meeting turned out more hawkish than we expected, which reflects both a change in the Fed economic assessment and its reaction function. In the presser, Chair Powell was very confident on the prospects for a strong recovery. He repeated many times that ‘we are on a path to a very strong labor market’.
In addition, the FOMC has become more concerned by the risk of de-anchoring of inflation mainly due to the high April and May inflation prints. Chair Powell repeatedly implied that the Fed would not hesitate to tighten policy if inflation expectations de-anchored. Finally, he conveyed greater confidence that the Fed can lift inflation: ‘I have more confidence that we could see inflation above 2 percent, that it may not be as hard to do that as we thought, and that inflation expectations may move up’.
Subscribe to Macro Hive Prime to read this article
and enjoy exclusive features, such as in-depth analysis, insightful op-eds and access to our community chat room.
Already have an account? Log in
Enter your email to read this Macro Hive Exclusive
OR
Already have an account? Log in