, Columnist
The Fed Doesn't Understand How Inflation Works
The central bank’s complicated formulas don’t align with real world experiences.
The Fed is having a hard time understanding the cost of money.
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The concept of inflation has been a constant thorn in the side of central bankers. Although price stability is one of the main goals at many central banks, inflation targeting has proven a difficult exercise. Many central bankers have gone as far as questioning whether economists even understand the drivers of inflation. Without understanding its basic building blocks, how can central banks be expected to control inflation?
Most recently, Bank of Finland head Olli Rehn called for the European Central Bank to conduct a review of its inflation policy: