Should-Read: Tim Duy: Fed Is Ignoring Actual Inflation Data: "Policy makers may be relying on the wrong model as they push for a December rate hike...

...One risk is that the Fed mistakenly adheres to a broken Phillips curve framework and continues to tighten policy despite low inflation. This risks excessive tightening, unnecessarily slowing activity and possibly triggering the recession gradualism is meant to avoid.

What concerns me most, however, is that for the Fed’s gradualism approach to work, policy makers need to resist stepping up the pace of rate increases should inflation accelerate. After all, they already tightened in advance of that quickening. I am worried that they will lose sight of the lags in monetary policy and, upon seeing inflation accelerate, conclude that their Phillips curve approach was correct all along and that they are falling behind the curve. This would almost certainly be a recipe for recession.

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