Fed Changes Its Inflation Stance

Published Friday, December 17, 2021 at: 7:36 PM EST

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The Federal Reserve has abandoned its “inflation is transitory” stance and says inflation is “persistent.” Stocks lost 2% from last week’s all-time closing high.

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The change in Fed policy is illustrated in this chart by Fritz Meyer, an independent economist. The Fed had been predicting inflation would peak at 4.1%. But its inflation benchmark, the Personal Consumption Expenditure Deflator, shot past 4.1% to 5% in October. 

On Wednesday, at a press conference, the Fed chief admitted inflation has been more persistent than expected and said the Fed now expects inflation to peak at between 5.3% and 5.4%, shown in the dotted gray lines in the chart above. The peak will occur in the first quarter of 2022, according to the Fed forecast, and then collapse to 3% or less in the second quarter of 2022. 

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The Standard & Poor’s 500 stock index closed Friday at 4,620.64. The index lost -1% from Thursday and -2% from last week, when it closed at an all-time high. The index is up +69.5% from the March 23, 2020, bear market low.


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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

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