For a central bank that has repeatedly stated that "inflation is always and everywhere a monetary phenomenon," the policy decisions of the past year are unprecedented and indefensible. It is unclear how much politics and financial markets influenced policy decisions, but policymakers are overly sensitive to both.
As bad as the policy decisions were in 2021, policymakers don't seem aware of the challenges they face to get inflation under control. Even though one policymaker called for a 50 basis point move at the next FOMC meeting in March, press reports indicate that others still believe a gradual or measured approach is the best policy option...
If policymakers still believe in the efficacy of monetary policy, how does the projection of three of four rate hikes to 1% in 2022 slow an inflation rate of 7.5%? That policy would still leave monetary policy in a more accommodative position than any time during the pandemic and with a jobless rate of 4% and fast-rising wages. Blunders by the Fed come with a cost, and the price is increasing with every passing day policymakers do not pursue a policy stance to contain inflation....
Strip out the emotion and markets digested the awful news rather well. The S&P 500 is simply where it was 7 months ago. But 10yr yields at 1.94% are now where they were in July 2019, when the S&P 500 was 32% lower than today (Nasdaq was 44% lower). And we are left to wonder at what level rising bond yields will matter?
