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Fed Policy’s Not Restrictive No Matter How Many Times Powell Says Otherwise
I don't love this talking point, and even if I did, it feels exhausted by now, so I won't belabor it
Seems best for the Fed to stick with the line that policy is restrictive until tariffs, deportations, etc send inflation higher this spring, and then point the finger at inflationary government policies. Since the Fed is going to get into a fight with the White House, messaging is important.
I’m actually rather sympathetic with the Fed’s line. How many times have we discussed how rapid and large this round of rate increases was, plus the flip from QE to QT? The Fed indeed took policy to what would have been restrictive, but it isn’t the only actor on the stage. The cuts in 2H24 probably shouldn’t have been taken, but hindsight is 20-20 and the Fed couldn’t factor in Trump II.