Flaws are evident in Fed’s approach to inflation

Financial Times/Fred Mishkin/1-11-2021

“The US Federal Reserve has been mugged by reality. Current inflation now exceeds 6 per cent, a level not seen in almost 40 years, and is proving to be far more persistent than Fed policymakers have projected. Why is Fed monetary policy behind the curve in tightening monetary policy to control inflation?”

USAGOLD note: Mishkin is a former governor of the Federal Reserve so he has some experience with its internal workings. It is interesting to note that he sees the recent big change from anticipating inflation to waiting for it to become evident as counter-productive. Such a policy, it we are reading his critique correctly, will always put the Fed behind the curve. The markets have not accepted, as this note is written, that reality. Mishkin goes on to say that the Fed needs to return to a pre-emptive approach to inflation and that if it doesn’t the outcome will be “persistent inflation well above the 2 percent objective …”