Will Fed Get Stuck With Sticky Inflation?

By cutting interest rates despite strong economic growth, the Fed now risks overstimulating demand and reviving inflation. Services and wage inflation remain sticky, raising the risk that headline inflation gets stuck above 2.0%. … The bond market agrees with our assessment that the Fed turned abruptly too dovish recently, boosting market expectations for long-term inflation higher. ... Now, the FOMC's obsession with the so-called neutral federal funds rate or r* may be coming back to bite them as the notion of the real federal funds rate is upended by these increased inflation expectations.