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Inflation and the Fog of War

With inflation at 8.5%, observers are debating what the Federal Reserve did wrong. But here’s one thing the Fed got right: In August 2020, it announced a sea change in how interest rates are set, abandoning its longstanding practice of preemptively raising them to counter inflation. That was necessary, but not sufficient.

In announcing the move, Fed officials rightly acknowledged that there is no “exact science” for applying rigid inflation benchmarks. But they haven’t fully explained the science behind that statement. Nor did they cite historical precedents showing why relying on the measured rate of inflation can lead to bad decisions, particularly in times of war or a crisis like the Covid pandemic.

https://www.wsj.com/articles/inflation-and-the-fog-of-war-measurement-consumer-price-index-world-war-two-federal-reserve-11649945343 Inflation and the Fog of War

Ethan Gach

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