The Fed cannot continue to tout that its policy is “data dependent” when recent data reflect that the Fed has effectively achieved its dual mandate, yet it doesn’t raise rates and indicates sustained extremely easy monetary policy.
With the modification of its dual mandate, this very activist Fed obviously is pursuing something more. It is basically saying that it aims to overheat the economy and that it will tolerate inflation above 2%, with the goal of further labor market improvement. Improvement includes both broader measures of unemployment—such as U-6, which includes workers that are designated as “marginally attached to the labor force” and “part-time for economic reasons”—and wage gains. In doing so, the Fed is understating the distortions it is generating and the higher risks of financial instability.
The Fed is nowhere near ready to raise interest rates high enough to fight off the developing accelerating price inflation. This will result in a series of interest rate hikes to fight climbing inflation that will not be enough and will allow price inflation to get out of control The Fed inflation fight will be too little too late. The inflation will keep on climbing and the capital-consumption structure of the economy will continue to be distorted.
It will not end well. And, interest rates will be much higher when it does end. Austrian-lites who think the Fed won't be able to raise interest rates have no idea as to what is developing.