The Fed and Inflation: Wrong on Average

Federal Reserve Chair Jerome Powell testifies during a House Oversight and Reform Select Subcommittee hearing on the coronavirus crisis on Capitol Hill in Washington, D.C., June 22, 2021. (Graeme Jennings/Pool via Reuters)
The average inflation target has eroded the Fed's credibility.

NRPLUS MEMBER ARTICLE Q uick as a flash, the Federal Reserve switched from dovish to hawkish on inflation. The Fed initially planned to wind down bond purchases by June of 2022 and raise its interest-rate target later that year. Now, the central bank says its balance sheet will stop growing in March, with rate hikes to follow shortly thereafter. The Fed’s willingness to make drastic changes in the face of new inflation data is encouraging.

But we’re not out of the woods yet. The Fed still hasn’t solved a more fundamental problem than inflation: its own lack of credibility. Markets could be in store for

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