Agency: The Fed becomes a “follower” to the market

On 30 July, the Quaker Macro reported that the Fed ' s response function had been transformed and that the short-term interest rate increase was less important. Walsh pointed out that the nominal and real rates of return on United States debt had risen significantly during both meetings and that the market had contracted for the Federal Reserve. For the first time, Walsh presented his own response function: first, the Fed deliberately diluted its role, and the market was already ahead of the Fed; second, when employment was roughly balanced, as long as potential inflation went up, it tended to tighten policies, not to ignore (look through) supply shocks to inflation, but to focus on the sustainability of its spread; and third, as long as price stabilization targets were met and potential inflation went down. While Walsh repeatedly expressed his determination to fight inflation, he referred to a more comprehensive inflation measure than the PCE and suggested that new inflation indicators might be seen by January next year. Until the Federal Reserve establishes new inflation measures or proves that high inflation has spread widely, the Federal Reserve maintains interest rates as the benchmark. Kim Xian