Jerome Powell s Finest Hawk Feathers – WSJ

The most important reason for market doubt is that Mr. Powell and the Fed are still rebuilding their credibility after the 2021 fiasco of claiming inflation would be transitory. The Fed stuck to that line for months even as prices rose, and the result has been the worst inflation in 40 years. Markets still may not be sure that Mr. Powell and the Fed won t wilt under political pressure when the jobless rate begins to increase or there s a financial scare bigger than the crypto meltdown.

The proof on that question will only come in the seeing. But meantime it s worth recalling how far the Powell Fed has been forced to travel in its estimates for higher rates in a mere 12 months. Last December the median forecast by Fed officials for the fed funds rate in 2022 was 0.75%-1%. In March it was 1.75%-2%, then 3.25%-3.5% in June, 4.25%-4.5% in September, and now it s 5%-5.25% for 2023. The trend underscores how badly the Fed misjudged inflation and the medicine required to break it.

The Fed is now admitting that Americans will pay a price in slower growth and higher joblessness because inflation took off, though it may still be underestimating that price. Its median forecast for economic growth for both this year and in 2023 is a mere 0.5%. But CEOs are nearly unanimous in anticipating a recession this year.

I wish there were a completely painless way to restore price stability, Mr. Powell said Wednesday. There isn t.

He s right and the honesty is welcome. But it s all the more reason to regret the mistakes of easy money and fiscal profligacy that brought us to this unhappy pass.

via www.wsj.com

I tend to agree with Jeff Snider about the Fed. See his youtube video above.