[Marsymars]

They're mandated to raise interest rates in the event of structural inflation, not in the event of a one-time increase in prices. It would be silly if the government increasing the VAT required the fed to increase interest rates.

[sorcerer-mar]

Even if the tariffs work as desired, they result in persistently higher prices. Unless you're expecting American laborers to work for less than literal Chinese robots, I guess.

[Marsymars]

Right, I’m just saying that raising interest rates in response to that doesn’t make any sense. It would be functionally equivalent to raising interest rates as a response to an increase in the income tax rate in order to restore the buying power of your pre-tax-increase income.

[sorcerer-mar]

Powell seems to disagree: https://archive.ph/hbwTZ

[Marsymars]

Link seems broken? From what I’ve seen of what Powell has said, it seems to track with my post, e.g. “Our obligation is to keep longer-term inflation expectations well anchored to make certain that a one-time increase in the price level does not become an ongoing inflation problem,”

i.e. It’s not the price increases directly caused by a tariff or sales tax that they’re trying to prevent, it’s any knock-off effect in price expectations that causes additional inflation.

[beams_of_light]

That's an odd, fundamentally disconnected mechanism that, I think, would have devastating impacts for Main St.

[no_wizard]

and it does, and has for many decades. This dual mandate makes little sense in practice

[dragonwriter]

The dual mandate makes plenty of sense when you realize that the Fed and monetary policy aren't intended to be the whole of economic policy, and that the actual main piece of economic policy is with Congress and fiscal policy.