Well, I guess I was wrong… some people do “disagree with that”! So thanks for chiming in.
I get your perspective, but fwiw (and I am not an expert here), I do think they matter. More than you seem to think they matter anyway.
Some quick/simplified thoughts:
– Supply chains and the war — the whole world is dealing with these issues, yet core inflation is running a lot higher in the US than in other developed countries (and most emerging countries for that matter). So those cannot be used to excuse high inflation here… a big chunk of the high inflation in the US is demand-driven, not supply driven.
– I do agree that this is the result of the federal govt stimulus (no coincidence that the US had the biggest stimulus by far, and now it has the highest underlying inflation).
– The above two thoughts don’t actually really address the question of whether the Fed matters, though. Which is to say — it doesn’t really matter what caused the inflation… the Fed’s job is to make the inflation go away. Or put another way (and Jpow said this himself) – supply is what it is, and the Fed has to calibrate demand to that supply in order to get inflation to target.
– So, if you think the Fed doesn’t matter, that’s the same as saying that they can’t – or won’t – reign in demand. I disagree on the “can’t” — they can jack up rates until they cause a recession, if need be. The “won’t” is more arguable but my view is that they really are committed to fighting inflation. And even if they blink before it’s really reigned in – they can still make a difference, and if they blink it’s probably because they HAVE made a difference and have blown up some market or something.
– Also, I would argue that they’ve already proven they can make a difference. My view is that we’ve had a raging equity bubble going, and it’s probably in the middle of bursting, and you can more or less trace the beginning of that bursting exactly to a big pivot in Fed policy.
– More directly you can see the impact on bond markets. So far this is the worst year EVER for bonds… I think that can be traced directly back to the Fed pivoting to a much more aggressive policy.
– And then there’s housing… you can bet that the housing market of this summer will look very, very different from that of last summer — due entirely to the change in the bond market, which is due in turn to the Fed-driven rise in rates.
– You might think – maybe rates are up because inflation is up, not because of the Fed. But if you look at rates and inflation, you will see that inflation was running quite high while rates stayed low for a while… the main inciting incident for higher rates was a pivot in Fed policy.
A lot left out here but in brief, that’s why it’s my view that “the Fed matters a lot”.
(NB: This is not an endorsement of the obsessive, singular focus on the Fed as exhibited by some of our forum members.)
