Over the past few months, price hikes above expectations have prompted cohorts of investors to proclaim, “the Fed is behind the curve!” It is a well-known fact that the Federal Reserve’s (Fed) statutory dual mandate is to target both price stability and maximum sustainable employment.
On the second point, the US labour market has seldom been stronger. The latest projections place unemployment at 3% by the end of the year, an event that has not occurred since the 1950s and which should continue to foster economic growth. However, by any reasonable measure of inflation the Fed is in fact “behind the curve” on the first point. Inflation is running rampant, well above its 2% target according to the main measures (US CPI headline was at 8.5% YoY in March, while YoY core PCE deflator was 5.4% in February), suggesting the Federal Open Market Committee (FOMC) should be hiking rates more rapidly to suppress these price increases.
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