In today’s briefing:
- Fed Still Playing Catch-Up By Relying on Policy Gradualism to Tame Inflation
Fed Still Playing Catch-Up By Relying on Policy Gradualism to Tame Inflation
- Debate about stagflation or another Roaring 20s in the aftermath of the COVID-19 pandemic favours the former, while the Fed has lost anti-inflation credibility by delaying policy tightening measures.
- The previous US expansion was well-balanced, while the Fed’s long-term economic outlook has not shifted. The post-pandemic recovery has significant supply-demand imbalances, boosting fears of more entrenched inflation.
- Gradualism is still the accepted way to change Fed policy settings to avoid upsetting markets. There is, however, a risk the Fed will raise its inflation target.
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