Is the Fed too eager to raise rates?
https://lnkd.in/e5Vz4fS5
As Mr. Sandhi points out, the Fed is in an unenviable position in its choice of decisions. If it allows the economy to surge ahead, inflation may become institutionalized, while slamming on the breaks can tip the world's economy into a recession of unknowable depth and duration. This decision has many unknowns, including the relative importance of various factors in maintaining inflation at high levels and the unknown impact of a labor market undergoing structural changes. A central question is whether a wage-price cycle is inevitable if the Fed resists a dramatic rise in interest rates. And yet, despite the uncertainties, the Fed is hell-bent on pursuing an all-or-nothing approach. Mr. Sandhi convincingly argues that public opinion may be a decisive factor. In the public's perception, economic pain is preferable to high inflation. However, it remains to be seen if opinion remains the same if the coming recession turns out to be deep and prolonged and only has a moderate impact on inflation.
