Federal Reserve Makes a Welcome Pivot But Has More to Do
The central bank needs to boldly reinforce its policy shift in the coming weeks.
Not quite hawkish enough.
Photographer: Michael Nagle/Bloomberg
In a move labeled by some as a hawkish pivot and by others as a great reset, the Federal Reserve’s policy committee just went in one meeting from its often-repeated characterization of inflation as “transitory” to portraying it as the “No. 1 enemy” facing the economic recovery. This policy change, while seemingly abrupt and drastic, is much needed and highly welcome. That’s the good news. Less good is that it is not sufficiently bold, at least as yet, and especially because it is coming so late.
Noting that inflation is proving to be much higher and much more persistent than the central bank’s repeatedly revised upward forecasts, Chair Jerome Powell announced on Wednesday a faster rate in the reduction of its monthly asset purchases (the so-called taper). The Fed also signaled the probability of a more aggressive initial cycle of rate increases, noting that “significant progress” has been made on “maximum employment,” the other component of its mandate.