Tim Duy, Columnist

Fed Will Accept a Recession Before It Allows High Inflation

Even modest price increases could compel the central bank to raise rates faster.

April 19, 2018 at 4:29 PM UTC

Tim Duy is a professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy's Fed Watch.

Jerome Powell is in charge now.
Photographer: Scott Olson/Getty Images

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Don’t worry about faster inflation. The Federal Reserve has a history over the past two decades of snuffing out consumer-price increases before they take hold. Instead, worry that even modest inflation could compel the Fed to undertake a late-cycle acceleration in the pace of tightening.

Inflation is rebounding in line with the Fed’s expectations, as weak numbers from last March drop out of the year-over-year comparisons. The weakness of last year was indeed transitory, and, on the back of a low unemployment rate, central bankers expect inflation to firm up a bit more and modestly overshoot the Fed’s 2 percent target by the end of 2019. Policy makers expect inflation to peak near 2.1 percent this cycle, according to the latest projections.