On the March FOMC

For the first time since Powell announced in August the Fed’s intention to seek inflation above 2%, the forecasts in the Summary of Economic projections now say it will be achieved and sustained into 2023. At the same time, the “dot plots” of the forecasted funds rate targets barely budged, despite market-implied forward rates having risen sharply since the December FOMC. The Fed is saying it “means it” about achieving higher inflation and making no move to tighten when it arrives. This is consistent with the Fed’s abandonment of the Philips Curve, and its embrace of letting the economy “run hot,” seeing maximum employment as an “inclusive” goal that benefits minorities and the less-educated. That there could be a more than complete recovery from the Covid Depression and a return to 3.5% employment with inflation above 2%, all with no rate hikes, could be a bit of cheerleading. But that’s what it takes to make that recovery happen in the first place.