Despite Mr. Powell’s insistence that monetary policy remains “restrictive,” there isn’t much evidence this is so.
Beyond ample anecdotal evidence from asset markets (and, indeed, sticky inflation), formal measures such as the Chicago Fed’s twin indexes of financial conditions have been loosening since March 2023.
https://www.chicagofed.org/research/data/nfci/current-data
If the Fed hadn’t devoted so much energy to head-faking investors with forward guidance promising to do things the central bank shouldn’t do, those investors would have been warning the officials that inflation remains far from whipped.
Were officials to yammer less at the markets, investors would be free to place meaningful bets about future inflation and send meaningful price signals about what the Fed should do in response.
This is what long-bond investors, who increasingly seem to despair of forward guidance, have already done. They’ve pushed up yields since September in exasperated anticipation of inflation to come.
Joseph C. Sternberg Wall Street Journal 19 December 2024
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