Question: What should the Fed do now?
Answer: Hit its target.
Question: But what does that mean?
Answer: That’s the problem.
There’s an ongoing debate about whether the Fed should bring inflation down gradually or quickly. THIS DEBATE SHOULD NOT EXIST. The Fed should have decided on a policy regime in 2020, and then stuck to it. A policy regime includes instructions on what to do next if you miss the target. NGDPLT anyone?
Here are some fun facts:
Average inflation rate during the 30 years before the Fed adopted its 2% average inflation target in August 2020: 1.9%
Average inflation rate during the 20 months since the Fed adopted its 2% average inflation target in August 2020: 5.2%