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**DECEMBER 14, 2022**

Kuttner on TAP

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**** The Fed Keeps Throttling the
Economy

Powell's astonishingly ignorant response to easing inflation pressures


The Federal Reserve Board's policy-setting Federal Open Market
Committee, as expected, raised short-term interest rates another
half-point. In the Fed's official statement, there was no
acknowledgment that inflationary pressures have been easing. Even the
lower-than-expected increase in the Consumer Price Index, released
yesterday, tempered neither the Fed's action nor its rhetoric.

On the contrary, the Fed doubled down on its explicit commitment to
bring inflation all the way down to 2 percent, a level that more and
more economists consider unnecessary and unattainable except at grave
costs to the real economy. But the statement flatly declared, "The
Committee is strongly committed to returning inflation to its 2 percent
objective."

The Fed also explicitly committed itself to further rate increases: "The
Committee anticipates that ongoing increases in the target range will be
appropriate in order to attain a stance of monetary policy that is
sufficiently restrictive to return inflation to 2 percent over time."

The Fed's target short-term interest rate is now set at 4.25 to 4.5
percent, the highest that it's been since 2007. Median GDP growth is
projected to be just 0.5 percent this year and next, or just above
recession level.

Even worse, the vote was unanimous. Although some members of the FOMC,
such has Fed Governor Lael Brainard, Boston Fed President Susan Collins,
and Kansas City Fed President Esther George, have spoken of the need to
temper the Fed's ultra-hawkish rate hikes, all of them voted for
today's action. In the Fed culture, the peer pressure against dissent
is immense.

The Fed forecast
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that the Personal Consumption Expenditures price index (its preferred
inflation index), slightly different from the CPI, will still be at 3.5
percent next year, and 2.5 percent in 2024. That's above their target
of 2 percent-which is used as justification for the Fed to keep
crushing the economy.

Speaking at a press conference immediately following the Fed's two-day
meeting, Chair Jay Powell said, with satisfaction, "Unemployment is
projected to rise to 4.6 percent next year."

"We are not at a sufficiently restrictive policy stance yet," he added.
"We still see a very strong labor market," Powell said with regret.

He did hint that the Fed might be open to slower rates of increase,
possibly a quarter-point at each meeting rather than a half- or
three-quarter-point hike. This may have been a concession to the
relative doves on the Open Market Committee.

Reporting on the Fed's decision, Powell did not say one word about
supply shocks. Given that supply constraints were the main drivers of
inflation, that omission was appalling. Nor did the elite financial
press-the reporters from

**The New York Times**,

**Wall Street Journal**, CNBC, Reuters,

**Financial Times**-ask any questions on supply chains. Thus the echo
chamber of the Fed culture, including the tame media that covers it.

Talleyrand is said to have remarked of the Bourbon dynasty, which was
restored after the defeat of Napoleon, "They have learned nothing and
forgotten nothing." The Bourbons were open-minded compared to Jay
Powell.

~ ROBERT KUTTNER

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