Commentators across the ideological spectrum have argued that inequality justifies a more hawkish path for monetary policy. These arguments miss the fact that interest rate policy primarily slows consumer spending and consumer price inflation by slowing down the labor market first.
January is always a high-variance month for inflation readings and especially so for this January. We have been flagging the dynamics that were likely to grease the runway...
Conventional wisdom has held that rate hikes slow inflation long enough that straightforward accounts of how exactly one turns into the other are hard to find. Today, everyone needs to be on the same page about how exactly it is that Fed policy in particular can slow inflation.
It is key for commentators and policymakers to bear in mind that "transitory vs. persistent" is not the same debate as "narrow vs. broad-based."
If the Fed wants to stay true to the "maximum employment" component of its forward guidance, and the "broad and inclusive" nature of that goal, it is imperative that their interest rate policy actions reflect a full recovery on both of these measures.
