More excellent from Steven Blitz at TSLombard. Agree.
There is no route back to 2% inflation without a recession, specifically one that raises the unemployment rate to around 5.5%. High inflation disinflates only after a recession. “Soft landings” have occurred, but when the Fed pre-emptively tightened with the funds rate already ahead of inflation — not the current situation. The 69-70 recession that Prof. Blinder recently called “soft” was soft because the Fed bailed too soon, allowing inflation to bottom above the prerecession low, thereby setting off a decade-long pattern that did not end until Volcker forced the issue. As the “Ol’ Perfesser” used to say, “you can look it up”.
It is problematic from a longer-term perspective that the current FOMC seems equally inclined to end the current tightening cycle before inflation truly tracks back to 2%. If this is not the bias of the FOMC, why else hike 50 in Dec and 25 in Feb instead of 75 in Dec. Or, for that matter, hike 25 in Feb and 25 in Mar, rather than 50 in Feb. What was to gain other than to be in the ready position to stop, pre-emptively. The Fed’s underlying presumption throughout this post-Covid period has been that the economy is heading back to pre-Covid norms of growth and inflation regardless, so there is no reason to become unduly restrictive and raise unemployment – immaculate disinflation.
