Powell Says Fed Can Look Past Oil Shock, but Warns Patience Has Limits
https://www.wsj.com/economy/central-banking/powell-says-fed-can-look-past-oil-shock-but-warns-patience-has-limits-c3d5b09e?st=pYnJPJ&reflink=desktopwebshare_permalink
Posted by EconomistWithaD
2 Comments
A few key insights:
1. Oil shocks are seen as “look past” events for central banks (this means you don’t factor them in planning), because reductions in growth are broadly cancelled out by increases in price.
2. Expectations are a major driver in inflation. This is an explanation for the Yellen “transitory inflation” comments, and also why Powell has recently stated that inflation is relatively anchored (and why rate hikes aren’t a plan right now).
Gift link for the free riders.
https://www.wsj.com/economy/central-banking/powell-says-fed-can-look-past-oil-shock-but-warns-patience-has-limits-c3d5b09e?st=pYnJPJ&reflink=desktopwebshare_permalink
That’s the standard playbook. They shouldn’t raise rates in the face of a supply shock. But if it lasts too long, and inflation expectations become unanchored, that’s what they would be actually responding to with raising rates in the future. So basically he just said the standard response function.