I don’t love this talking point, and even if I did, it feels exhausted by now, so I won’t belabor it too much.

But in light of what, all caveats aside, was a truly troubling US inflation report for the Fed, I felt compelled to briefly revisit the glaring juxtaposition between, on one hand, Jerome Powell’s insistence that monetary policy’s still “restrictive” and, on the other, the almost incontrovertible fact that it isn’t.

Yes, that’s supposed to be funny as phrased, but in all seriousness, Powell isn’t doing himself any favors in the credibility department by refusing to concede publicly that “restrictive” probably isn’t the right adjective for monetary policy given robust spending, core inflation that’s seemingly settled a full percentage point above the Fed’s target and generalized “animal spirits” evidenced in the services sector (until very recently) as well as asset prices, which’ve demonstrated an inclination to rolling bouts of speculative excess.

Contrary to popular belief (and their own penchant for screwing up), the Fed’s not dumb. They understand that the term structure of household and corporate debt served to insulate the US economy from rate hikes, and they’re fully aware that the neutral rate’s higher post-pandemic. (Add 2% inflation to the highest six long run dots from the December SEP and tell me how restrictive policy is.)

And yet, conceding the point’s a non-starter. Why? Well, because if policy isn’t restrictive as it is — i.e., if current settings are close to neutral or even below it — then rate cuts are stimulative, and a Fed that’s actively stimulating the economy when the unemployment rate’s low and core inflation’s stuck well above target is a Fed that’s not just derelict, but deliberately so. Hence Powell’s steadfast refusal even to entertain the notion in public.

On Wednesday, while regaling lawmakers in the House following the inflation report, Powell said, “I would say we’re close, but not there on inflation… so we want to keep policy restrictive for now.” That’s the sort of remark that drives Fed critics absolutely crazy, because it sounds a lot like reality denial, particularly on days when the data’s not cooperating. Days like Wednesday.

See that chart? That’s a Fed measure of US financial conditions. Regular readers are familiar. On that metric, financial conditions in the US are now the easiest since 2021, and near the loosest ever.

That’s the backdrop against which Donald Trump is now demanding additional rate cuts so America can, in his words, “rock and roll.”

To my memory, the only time this cycle that Powell conceded rates might not actually be restrictive was in October of 2023, during a chat with David Westin at the Economic Club of New York. “We have to focus on what the economy is telling us,” he said at the time. “Does it feel like policy is too tight right now? I would have to say no.”

The US economy has grown 3% or more every quarter since then but one.