ABC News Today

Last week, the chairman of the Fed, Jerome Powell said, “the disinflationary process has begun”. Many breathed a sigh of relief even like Powell he said he tells us that the process of returning to 2% would likely “take some time.” To bring inflation back to target, Powell told us to expect a series of ongoing increases in its reference interest rate.

This week we learned that inflation has decreased. I mean speed up.

General inflation (CPI) for January showed that prices rose to his faster month-on-month pace (0.5%) since October 2022. The data also showed that year-on-year inflation rose to its slower pace (6.4%) since October 2021. You get a similarly mixed picture when you strip out food and energy and look at underlying inflation.

Before the January CPI report, the phrase “ongoing increases” was broad interpreted it means a series of hikes of 25 basis points, with the next in March. But now there is growing speculation that the Fed could hike in light of the fact that month-over-month inflation has just accelerated.

Both Cleveland Fed President Loretta Mester and St. Louis, James Bullard, they are speaking on a possible 50 basis point hike at next month’s Federal Open Market Committee (FOMC) meeting. And while neither is currently a voting member of the committee, some have interpreted their remarks as an indication that the mixed inflation report could prompt the Fed to return to a more hawkish stance.

Regardless of what you expect Powell & Co. meeting, it is clear that the Fed is determined to return inflation to its 2% target by continuing to raise interest rates.”until the job is done.”

But here’s the thing. At the macro level, the federal government is a net interest payer, meaning that the Fed’s rate hikes function as expansionary fiscal policy in the sense that they result in hundreds of billions of dollars in additional spending by the federal government. Here it is as Warren Mosler explains in his MMT White Paper: