The Federal Reserve (Fed) has struggled to meet its 2% inflation target since March 2021, despite previous claims by Chairman Jerome Powell that inflation would soon stabilize. The persistent high inflation has significantly impacted the purchasing power of the dollar and housing affordability.
Inflation History: The Fed last met its 2% inflation target in March 2021. By the end of that year, inflation reached nearly 40-year highs due to massive monetary inflation during the COVID-19 pandemic.
Current Inflation Status: As of July, the Fed's preferred measure, the Personal Consumption Expenditures (PCE) inflation rate was 3.7%, and core PCE was at 3.3%. This means overall inflation has exceeded the target for 65 months.
CPI Trends: The Consumer Price Index (CPI) was up by 3.4% in August, remaining above the 2% target for 67 months, with a 28% drop in purchasing power since January 2020.
Wage Disparities: While some claim wages have outpaced inflation, this is not true for many, especially for young workers and first-time homebuyers, as their earnings fell behind inflation for significant periods.
Federal Reserve's Policy Flaws: Powell's repeated assurances about imminent returning to the target rate were wrong, raising concerns about the Fed’s competence in managing inflation.
Market Response: Consequently, long-term yields are rising, with significant increases in mortgage rates, indicating a lack of confidence in the Fed's policies.
The failure to achieve its inflation target raises questions about the Fed's effectiveness and economic strategies. The 2% target, established in the 1990s, is criticized as a political tool rather than a sound economic principle, benefitting wealthy asset holders at the expense of average consumers.
https://mises.org/mises-wire/price-inflation-has-been-above-two-percent-target-65-months-row
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