SLOOS Shows Looser Credit Conditions

The Fed may not be as almighty as Fed officials believe. The FOMC has raised the federal funds rate aggressively by 525bps since March 2022. Their goal was to slow economic growth to subdue inflation. Yet the economy grew rapidly during Q3 and the unemployment rate has remained below 4.0% since February 2022. Nevertheless, inflation has moderated significantly since last summer (chart).

Inflation seems to be to be mostly a transitory problem, after all, caused by the pandemic. Maybe labor shortages are stimulating a productivity growth boom. And, maybe retiring Baby Boomers are saving less and spending more. Perhaps, the Fed's Phillips Curve model is flawed. Solid economic growth is disinflationary rather than inflationary if it is productivity-based.