With several hotter-than-expected inflation numbers coming after two successive downshifts in interest-rate increases, an interesting debate is raging as to what the Federal Reserve should do next: Go back to a larger rate increase (50 basis points) or maintain a slower pace (25 basis points) but keep higher rates for longer.
Already an analytically tricky issue, this has become even more complicated by the Fed now falling behind on its inflation fight for the third time in just two years and what that implies for its already damaged credibility.
The argument for the Fed to return to a 50-basis-point increase later this month is based on the recent slew of macroeconomic numbers that suggest inflation is becoming stickier, and not just in the service sector.
The Fed was slow to react, failed to react forcefully enough when it finally did act, and then slacked off too soon.
But you don’t need me to tell you that, assuming you’ve actually bought stuff the last couple of years.
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