On the December FOMC

Powell successfully navigated dire political challenges. The FOMC doubled the pace of tapering of asset purchases, pointing to a March wind-up, to address concerns that that Fed is “doing something” about high inflation. It won’t reduce inflation, but it won’t harm the economy. The SEP upgraded the number of 2022 rate hikes from one half to three, in line with market expectations. The word “transitory” was dropped from the FOMC statement, but attributing it to supply-demand mismatches means it is still regarded as transitory nevertheless. In the presser, Powell said he doesn’t believe wage growth is contributing to inflation – another argument for transitory. The SEP estimate for 2022 inflation was raised to 2.7% from 2.3% – but compared to present levels, very much transitory. The key takeaway is that Powell did not utter so much as a single syllable suggesting that his Fed will try to slow the economy to fight an inflation wrongly believed to not be transitory.