“Once inflation gets above 5% it’s never come down unless fed funds have gotten above the CPI.” –Stan Druckenmiller
As I first noted here a couple of months ago, despite the Fed’s aggressive rate hike campaign over the past year, the fund's rate remains below CPI. As such, it’s hard to call current policy “hawkish” in the context of history.
In fact, the fed funds rate has been negative in real terms for nearly 40 months running. Only in the aftermath of the Great Financial Crisis have we seen a long stretch during the post-war era. Of course, this was understandable at the time because the disinflationary impulse of the crisis enabled an extreme monetary response.
Today, in contrast, inflation is running at its hottest levels since the Great Inflation of the 1970s and early-1980s. And then, Arthur Burns didn’t even manage to pull off such a feat of protracted dovishness.
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Hawkishness Is in the Eye of the Beholder, Part Deux
Published 02/16/2023, 01:41 AM
Updated 07/09/2023, 06:31 AM
Hawkishness Is in the Eye of the Beholder, Part Deux
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