#1 is partially correct. Given a shock – anything that requires a substantial adjustment in relative prices -- AND given that some prices cannot adjust downward, the only way to allow relative prices to change is for the average price level to rise. To avoid frozen relative prices which means that some markets do not clear, i.e. some resources are unemployed, the Fed will engineer some amount of over-target inflation. Of course, even if politicians understood this, they could still have demagogically blamed the Fed, even it is was only doing its job.
#3 is possible, but it implies a degree of concern for the future not normally seen among politicians. Cutting taxes to increase deficits diminishes future growth, but politicians do it anyway.
#2 is the most likely of the three. Democrats brand is for playing by the rules. They have criticized Trump for suggesting less autonomy for the Central Bank. Nevertheless, one would have thought that the Administration could have very publicly “had full confidence that the Fed would control inflation.”
I would suggest a slightly different version. To have argued (even subtly and politely) that the Fed had caused inflation would have made it more difficult for the Administration to claim credit for the economic recovery, the lowest unemployment in decades, the best economic performance in the OECD. And they just guessed wrong that the public paid little attention to anything but inflation, including giving credit for the Fed’s success in bringing inflation back down to target, for being right that inflations really was temporary as the Fed was saying in 2021.
#1 is partially correct. Given a shock – anything that requires a substantial adjustment in relative prices -- AND given that some prices cannot adjust downward, the only way to allow relative prices to change is for the average price level to rise. To avoid frozen relative prices which means that some markets do not clear, i.e. some resources are unemployed, the Fed will engineer some amount of over-target inflation. Of course, even if politicians understood this, they could still have demagogically blamed the Fed, even it is was only doing its job.
#3 is possible, but it implies a degree of concern for the future not normally seen among politicians. Cutting taxes to increase deficits diminishes future growth, but politicians do it anyway.
#2 is the most likely of the three. Democrats brand is for playing by the rules. They have criticized Trump for suggesting less autonomy for the Central Bank. Nevertheless, one would have thought that the Administration could have very publicly “had full confidence that the Fed would control inflation.”
I would suggest a slightly different version. To have argued (even subtly and politely) that the Fed had caused inflation would have made it more difficult for the Administration to claim credit for the economic recovery, the lowest unemployment in decades, the best economic performance in the OECD. And they just guessed wrong that the public paid little attention to anything but inflation, including giving credit for the Fed’s success in bringing inflation back down to target, for being right that inflations really was temporary as the Fed was saying in 2021.
https://thomaslhutcheson.substack.com/p/fuel-taxes-do-not-fuel-inflation