“There’s a clock running here.”
To understand why the Fed is sounding so hawkish when some analysts think inflation is finally cresting, it helps to understand how fundamental inflation expectations are to the central bank’s price-setting outlook wsj.com
To understand why the Fed is sounding so hawkish when some analysts think inflation is finally cresting, it helps to understand how fundamental inflation expectations are to the central bank’s price-setting outlook wsj.com
The concerns are twofold:
1) The Fed thinks long-term inflation expectations are anchored because those expectations have been stable. But we haven’t been through a shock like this in a long time, so do you really want to bet 40 years of inflation success on this?
1) The Fed thinks long-term inflation expectations are anchored because those expectations have been stable. But we haven’t been through a shock like this in a long time, so do you really want to bet 40 years of inflation success on this?
2) Economics models suggest that the cost of being wrong about this could be really high. If the Fed concludes expectations are stable when they’re not, interest rates could need to rise to very high levels.
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