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Yes, well... they make their own predictions, so it's not really a matter of whether the public trusts the Fed as long as they are internally unified. Public i
by chaorace 4y ago
Yes, well... they make their own predictions, so it's not really a matter of whether the public trusts the Fed as long as they are internally unified.
Public inflation expectations certainly do play a role in inflation, but, as Volcker showed us in the 80s, it doesn't matter how much credibility you have with the public if you're willing to slam on the brakes hard enough.
- starkd 4y agoBut I think a lot of the Fed's strategy was jawboning the rate increases - aka offering "forward guidance". Notice how the rate hikes were fairly measured and tepid. They didn't even start the actual QT until a few months ago. There's a limit to how effective jawboning is, and it requires the public have credibility in the Fed to do so. Eventually, you have to back it up with actions.
- chaorace 4y agoThat's a fair point, but let's also consider that markets tend to overreact to rate hikes. The public's languid response to the Fed's inching of the interest rate may actually be a desireable outcome. If they were truly going for shock & awe, it would have been much more effective do one single 2% hike rather than breaking it up over 3 adjustments.