[Intelligencer] The Federal Reserve has now raised its benchmark interest rate from near zero to above 4.5 percent in the space of a year. That represents the most rapid spree of monetary tightening in U.S. history. It is past time for the central bank to take a breather.
In recent weeks, a growing array of evidence has indicated that inflation is firmly on a downward path. At this point, the imperative to avert an unnecessary recession must take precedence over minimizing inflationary risk.
My argument for that assessment has two parts. The first is a matter of data, the second of values.
The consumer price index (CPI) declined by 0.1 percent between November and December. On a year-over-year basis, inflation remained at the elevated perch of 6.5 percent. But as Paul Krugman argues, for discerning the future path of inflation, it may be better to look at the rate of price growth over a six-month period. That interval eliminates the "noise" (i.e., semi-random variations) that can influence month-to-month changes while still cleaving relatively current trends from outdated ones. And if you take the trend of price growth over the past six months, then annualize it, inflation appears to already be on its way back to the Fed’s 2 percent target. |