Excellent interview, many thanks Kathleen. Clarida is one of the best communicators on these difficult Fed issues. I would suggest, however, on the topic of inflation target overshooting, this type of episode deserves deeper (different) analysis. Strong growth & tight labour markets driving a trending move above the 2% target can potentially be addressed by considering the Evan's rule. However, when you have rolling supply shocks and such macro dislocation, as we did from Covid and then Russia-Ukraine war, smoothed, lagging macro-economic indicator rules are not able to assist with unprecedented circumstances. 2022 was a year where the Fed needed to put on its risk management hat. Any potential benefits offered to the lower level employment pool in late 2021 or in the face of a gentle lift-off in 2022 where more than reversed in 2023 through loss of real income, and other externalities from the largest inflation episode in many decades. The trade-off was not worth it. A risk management approach would have addressed this trade-off correctly. The circumstances were extreme. It wasn't a time to take a policy risk, and worse, other Central Banks were following the Fed's lead. So, rather than this being a useful part of the counter factual analysis, it should be addd to the costs of the policy error.
Excellent interview, many thanks Kathleen. Clarida is one of the best communicators on these difficult Fed issues. I would suggest, however, on the topic of inflation target overshooting, this type of episode deserves deeper (different) analysis. Strong growth & tight labour markets driving a trending move above the 2% target can potentially be addressed by considering the Evan's rule. However, when you have rolling supply shocks and such macro dislocation, as we did from Covid and then Russia-Ukraine war, smoothed, lagging macro-economic indicator rules are not able to assist with unprecedented circumstances. 2022 was a year where the Fed needed to put on its risk management hat. Any potential benefits offered to the lower level employment pool in late 2021 or in the face of a gentle lift-off in 2022 where more than reversed in 2023 through loss of real income, and other externalities from the largest inflation episode in many decades. The trade-off was not worth it. A risk management approach would have addressed this trade-off correctly. The circumstances were extreme. It wasn't a time to take a policy risk, and worse, other Central Banks were following the Fed's lead. So, rather than this being a useful part of the counter factual analysis, it should be addd to the costs of the policy error.