The Fed talks tough
• The Fed is focussed on inflation
• It will stay hawkish even as inflation falls, at first
• Core inflation and wages will be key (Focus p2)
• The US is close to recession, Europe already there
• Markets are having a rollercoaster year (see p3)
Overview
At his Jackson Hole speech last week Fed Chairman Powell remphasized his commitment to bringing inflation back to 2%. The Fed is terrified of making the same mistake as in the
1970s, when inflation got out of hand. Bringing inflation down then took the determination of then Fed Chairman Paul Volcker who created a severe recession and prolonged high unemployment. It is very doubtful today whether inflation can be returned to 2% without at least a mild recession.
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