It seems the Fed has become obsessed with the employment side of its mandate. It’s nice that the unemployment rate has fallen but so many workers have left the workforce and the Fed can’t do much for employment anyway.
There is far too little emphasis on low inflation in the US. Atlanta Fed President Dennis Lockhart says there is no convincing indication that inflation is rising to a healthier zone.
US Core PCE inflation y/y
I get that the Fed doesn’t want to print forever but officials there also have the ability to steer policy debates. Eventually, they will need to force Congress to take a harder look at inflation and how the government can support price rises.
It’s not even just a ‘post-crisis’ story. Look at the 1999-2005 period. Inflation is nil over that time and you had a massive run-up in house prices along with a commodity-price boom.
To me, the Fed is slowly losing credibility on inflation — especially as an institution that can prevent deflation. Instead of arguing about the health of the labor market and hiking rates, the Fed should be going to war to prevent disinflationary forces from taking hold.
