The real danger is that the Fed stops tightening too soon and lets inflation move even higher and stay there longer. They need to drive a stake into this vampire’s heart so it stays dead. Yes, they should try to minimize the pain, but that can’t be the primary goal.
The problem is this relies upon the Phillips curve, which is notoriously unreliable. It should simply not be used as it is so often wrong. I once asked a Fed economist at Camp Kotok why they keep using it? His answer floored me: “We use it because we don’t have anything else to model and we need to use something.”
The pessimist in me says Larry Summers is right but it won’t matter, because the Fed will proclaim victory long before the unemployment rate reaches 6%.
Powell has turned his eyes on the target of inflation with what appears to be flinty resolve.
The market does not believe he will see it through.
John Authers 10 September 2022
A soft landing - possible but unlikely
Om arbetslösheten inte stiger väsentligt, hur faller då inflationen tillbaka till Fed:s 2%-mål?
Wolf och Dudley