Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment. However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas. The cumulative rise in energy and other costs have the potential to add to inflation pressures; however, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained.
The Fed raised rates a quarter-percent, again. But the problem is that core inflation—everything other than energy prices, basically—is not rising, so the Fed is responding primarily to external costs that may be passed along to the rest of us, by raising the cost of money for all of us. There is less and less room for the Fed to have monetary policy work effectively.
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