The Humbling of the Federal Reserve – WSJ

The Federal Open Market Committee meets Tuesday and Wednesday, as it seeks to address the worst inflation in 40 years amid new risks to economic growth. Whatever the Fed decides on interest rates, it s worth recalling how the central bank arrived at this unhappy moment.

The first reality to confront is that this is a mess largely of the Fed s own making. The central bank s inflation target is 2% for personal-consumption expenditure inflation, and the rate in February was probably three times higher. The Consumer-price index is higher still.

Government spending excesses in 2020 and 2021 played a role, but the Fed made all of that easier to pass by maintaining the policies it imposed at the height of the pandemic recession for two more years. Low interest rates make deficits seem more fiscally manageable than they really are. The Fed has continued to buy Treasurys and mortgage-backed securities even as inflation nears 8% right up until this week s meeting.

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What went wrong? The Fed is supposed to have the world s smartest economists and access to the best financial information. How could they make the greatest monetary policy mistake since the 1970s?

via www.wsj.com

What does the Fed lose if they are wrong? Do they lose any power? Any money? Or do they just keep muddling along? That’s your answer.