Don’t Expect Clairvoyance From the Federal Reserve
The balance of future supply and demand is unknowable, and so is the correct path for interest rates.
Sometimes you have to wait and see.
Photographer: Samuel Corum/Getty Images
Life isn’t getting easier for the Federal Reserve. U.S. inflation remains way above target, supply blockages show no sign of easing, the labor market is stretched — and the pressure on prices continues to build. Many investors are expecting a faster pace of tightening from the Fed; but overdoing it risks pushing the economy into recession. Striking the right balance in monetary policy has rarely looked so difficult.
A consensus is emerging that the Fed will have to tighten more forcefully. Hawks on its policy-making committee are being heard more attentively and officials who’ve taken a softer line up to now seem to be coming round. It’s acknowledged that critics such as Harvard’s Larry Summers, who’ve been warning about persistent inflation for months, were right. Even so, the risk that too much tightening might crush the expansion hasn’t gone away.