This FT article caught my eye:
Vincent Reinhart, who worked at the US central bank for more than 20 years, expects the Fed to proceed “gradually” this year in light of geopolitical uncertainties and the dovish composition of the its monetary policy setting committee. He also worries that will amount to a policy error.
“They’re not going to be able to tighten enough in 2022,” he predicted. “They’ll have to go a bit more in 2023 and inflation is going to be well above their goal this year and next.”
I think that’s right, but I’d like to make one small change, using my strikethrough function:
“They’re not going to
be able totighten enough in 2022,” he predicted. “They’ll have to go a bit more in 2023 and inflation is going to be well above their goal this year and next.”
So where do Reinhart and I differ? I cannot be sure, but I suspect Reinhart has in mind something like the following:
Given the Fed’s commitment to interest rate targeting, as well as their commitment to avoiding the sort of dramatic adjustments in the target interest rate that might spook the markets, they will not “be able to” tighten enough in 2022.
If that’s what Reinhart had in mind, then I agree. The real problem is the policy regime. The Fed needs to take seriously its commitment to average inflation targeting, and do whatever it takes to achieve that commitment. They need to “be able to” do the right thing.