After the Federal Reserve’s December meeting, Chair Jerome Powell made a conspicuous shift in how he discussed the trade-off between wanting to see greater improvement in the labor market and tolerating persistently elevated consumer price growth.
“One of the two big threats to getting back to maximum employment is actually high inflation,” he said at the time. Powell stressed that getting back to pre-Covid levels of labor-force participation would require a long expansion, which couldn’t happen with runaway price growth. I suggested this argument would likely become the central bank’s party line in the months ahead: Effectively, that increasing interest rates and tightening monetary policy is a benevolent move on the Fed’s part.
