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Can the Fed Overcome Its Transitory Policy Mistake?

29 7 25
02.12.2021

CAMBRIDGE – It took way too long, but key officials at the US Federal Reserve have finally acknowledged that for months they mischaracterized an inflationary surge that has proven larger and more persistent than they expected. That recognition is welcome, especially given the likelihood that inflation will remain uncomfortably high in the coming months. The challenge now, not just for the Fed but also more broadly for the United States and other major economies, is to navigate a policy terrain in which communication and implementation have been rendered significantly more complex by a fundamental misreading of inflation as “transitory.”

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