Who’s Right About Inflation….The Fed’s Critics Or the Markets?

Who’s Right About Inflation….The Fed’s Critics Or the Markets?

WASHINGTON, DC - June 2: The Eccles Building, location of the Board of Governors of the Federal ... [+] Reserve System and of the Federal Open Market Committee, June 2, 2016 in Washington, DC. (Photo by Brooks Kraft/ Getty Images) Among critics of the Federal Reserve, the claim that it is "behind the curve" has been a rallying cry that it is acting too slowly to rein in inflation. In their judgment, the spike in inflation this past year to a three decade high is not transitory, and the federal funds rate will need to rise by more than the 75 basis points this year that the Fed signaled at the December FOMC meeting. In a recent Wall Street Journal commentary, Mickey Levy of Berenberg Securities cites data that show a broadening of price increases and mounting wage pressures as evidence that inflation is becoming embedded. He concludes that the Fed will have to tighten policy much more than it currently envisions to tame inflation. While I concur with this assessment, the predicament for investors is that if they wait for price and wage data to validate their view, markets may have already reacted. Therefore, they also need to look