U.S. consumer prices leapt 8.5% in March from a year ago, the biggest jump since 1981. The Fed is playing catch up as its policy framework was designed for a low, not high, inflation world. swahapattanaik
. It was the biggest jump since 1981 and three times higher than a year ago. Inflation may now be at or near its peak. But prices will still rise faster than the Fed’s goal for some time despite a series of interest rate hikes that are in the offing. Powell’s mistake was using an approach that paid too little heed to real-time markers of price pressures.
Cleveland Fed President Loretta Mester said on Sunday inflation will remain above 2% this year and next. Unexpected shocks, like jumps in energy prices after Russia invaded Ukraine, are partly responsible. But so is the policy framework, called flexible average inflation targeting, that Powell unveiled in 2020. This compass was designed to cope with an economy that generated too little inflation, and failed when prices began rising more quickly.
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