US inflation draws concerns from investors, experts

INFLATION TARGETING QUESTIONED

The Fed's prevailing management framework for inflation is being questioned as experts worry it could not control inflation precisely or repeat policy mistakes.

"The concern that I have is that central banks have become overconfident about their ability to control inflation precisely," said King.

King said he is concerned with the framework of flexible average inflation targeting (FAIT) announced by the Fed in 2020 because "it implied that it was possible to control inflation that precisely, and as we've just seen, it isn't."

The kind of calculation behind the inflation targeting framework may work in a model, but doesn't actually work in the world, according to King.

King added he is also concerned about central banks' ability to forecast interest rates two or three years ahead.

The Fed can manage expectations in financial markets but they cannot influence price setting behavior in the non-financial sector, said Levy.

"But the Fed presumes it can ... One of my real concerns is the Fed is looking at inflation through its perception of what inflation may be appropriate for its long-run macro stabilization policy," said Levy.

There are widespread inflationary pressures in the United States, and in most developed market economies, particularly asset and credit inflation, according to MRB Partners.

In recent decades, central banks' "myopic focus on CPI (central bank inflation) to guide policy has created persistent asset bubbles and then economic or debt crises when the bust phase develops," warned MRB Partners.

Central bank inflation targeting has frequently missed rising imbalances and led to painful global policy blunders, added MRB Partners, citing the biggest mistake in this respect that occurred in Japan in the 1980s.