Central Banks

In an new essay, St Louis Fed President Jim Bullard argues the Fed needs to ‘stay ahead’ of inflation and follow the 1983 and 1994 examples of policymaking.

“Tthe FOMC kept the policy rate relatively high above the inflation rate, and therefore real interest rates were relatively high. The subsequent macroeconomic performance—with respect both to inflation and to output and labor markets—was very good, which shows the merits of staying ahead of inflation as opposed to falling behind.”

  • Today’s FOMC has taken important first steps to return inflation to target.
  • Furthermore, its forward guidance that additional policy rate increases are likely in coming months is a deliberate step to help the FOMC more quickly move policy as necessary to bring inflation back in line with the Fed’s 2% target.

Some people are pointing to this as a reason for the rout in equities at the moment but I don’t see that. There’s nothing new here.The Fed is not ‘ahead’ of anything right now.

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