Jerome Powell Is Not Losing Control of the Fed, Richard Clarida Says

Economic Overview - The current state of the labor market in the US is described as "squishy," indicating uncertainty and lack of clarity due to incomplete data [1][2] - Employment growth has been soft, with a noted slowdown in labor supply attributed to immigration enforcement [2] - The Federal Reserve is facing a curious balance in the labor market, with downside risks to employment influencing potential rate cuts [2] Inflation Insights - Inflation is currently closer to 3% than the targeted 2%, which may lead the Federal Reserve to be more comfortable with the existing inflation rate [3][4] - The Fed's inflation target has been discussed, with a comfort level existing as long as the first digit of the inflation rate is 2 [4] - The CPI is reported to be 50% above the Fed's stated target, indicating significant inflationary pressures [9] Federal Reserve's Position - The Federal Reserve is not operating without data, as it has access to various regional banks and analysts, but the absence of official data limits forecasting accuracy [6][7] - High-frequency, real-time data is increasingly being utilized by the Fed and private sector firms to complement official data [8] - The Fed's decision-making may be impacted by the prolonged absence of official data, which could complicate policy decisions [9] Global Context - Central banks globally may be opportunistic regarding inflation, allowing it to run higher to manage debt issues, although they prefer lower inflation rates [10][11] - The eurozone is cited as a counterexample, currently experiencing inflation around 2% [12] Policy Challenges - The Fed's struggle to bring inflation back to the 2% target is highlighted, with various factors influencing inflation rates, including tariffs and fluctuating gasoline prices [14] - The longer the Fed remains away from the 2% target, the greater the risk that public and financial markets may question the validity of the target [15] Governance and Control - There is a healthy exchange of views within the Fed, with dissent being a normal feature of decision-making rather than a sign of losing control [16][18] - The complexity of the current economic environment necessitates a range of views, which can lead to dissenting opinions within the committee [17][18]