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Forward Guidance
A Dilemma Of The Fed’s Own Making | Danielle DiMartino Booth & Joseph Wang
May 2, 2022
45:23
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Quick takeaways
- The Federal Reserve risks losing credibility by not recognizing the rapid economic slowdown and the widening credit spreads, which may force the Fed to change course.
- Tightening monetary policy and quantitative tightening measures can lead to stress in the housing and credit markets, making it difficult for companies to borrow money and negatively impacting the economy.
Deep dives
Powell's credibility on the line as he sticks to transitory narrative
In an upcoming FOMC meeting, Fed Chair Jay Powell's credibility is at stake as he continues to insist on the transitory nature of inflation. His handling of the economy's strength is also in question, especially considering recent announcements from private employers like Amazon reducing headcount. Powell's insistence on labor strength is seen as contradictory to the knowledge of lagging indicators and the potential dangers of economic instability.
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