The Fed’s battle against inflation risks turning into a forever war—and may last as long as Operation Iraqi Freedom while Iran ‘status quo’ drags on
That means the Fed could fall short on the price-stability portion of its dual mandate for eight straight years—or as long as Operation Iraqi Freedom lasted.
Key points
- In September, the Fed’s summary of economic projections put down 2029 as the year when inflation is expected to fall back to 2%, pushing it back from a 2028 forecast made in June, as energy prices stayed high.
- Their fear is that an extended period of high prices will eventually cause consumers to lift their long-term inflation expectations and change currency spending patterns that fuel even more inflation.
- That’s why the Fed has sounded more hawkish lately as policymakers look to ensure inflation expectations remain anchored and prevent consumers from believing there’s more tolerance for higher prices.
Despite the obvious differences with the bloody Iraq war, the Fed’s inflation fight is also driven by events in the Middle East, this time in Iran.
With the Iran conflict dragging on indefinitely, the Fed may have to readjust its inflation outlook again and get more aggressive on rates.
Additional details
- Diane Swonk, chief economist and managing director at KPMG, noted Fed hawks are coalescing as inflation has been too hot for too long—and moving higher.
- This past week’s consumer price index for October came in hotter than expected and showed that inflation is spreading beyond energy categories into more goods and services, alarming Fed officials.
- Also on Tuesday, Dallas Fed President Lorie Logan said in separate remarks that it “may be possible to move more rapidly” than what September’s quarter-point hike and October’s hold have implied.
- But the Fed has also provided monetary stimulus, and Chairman Kevin Warsh has argued that high inflation is a “choice,” suggesting shocks are no excuse.
- In a few months, the Federal Reserve will be able to count six years that inflation has been above its 2% target, and central bankers’ own forecasts put “mission accomplished” sometime in 2029.
How this summary was made: extractive summary — built from the sources' own reporting. It is drawn only from the reporting of the sources listed below — read the originals for full detail. How we summarize →
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