Christopher Waller, a governor at the Federal Reserve, faced an uncomfortable task on Friday night: He delivered remarks at a conference packed with leading academic economists titled, suggestively, “How Monetary Policy Got Behind the Curve and How to Get Back.”Fed officials — who set America’s monetary policy — have found themselves on the defensive in Washington, on Wall Street and within the economics profession as inflation has run at its fastest rate in 40 years. Friday’s event, at Stanford University’s Hoover Institute, was the clearest expression yet of the growing sense of skepticism around the Fed’s recent policy approach.The Fed is raising interest rates, and on Wednesday lifted them by the largest increment since 2000. But prominent economists on Friday blasted America’s central bankers for being slow to realize that inflation was going to run meaningfully higher in 2021 as big government spending goosed consumer demand. They criticized the Fed for taking monetary policy support away from the economy too haltingly once it began to react. Some suggested that it was still moving tentatively when more decisive action was warranted.Mr. Waller defended and explained the decisions the Fed made last year. Many inflation forecasters failed to predict the 2021 price burst, he noted, pointing out that the Fed pivoted toward removing policy support starting as early as September, when it became clear that inflation was a problem.“The Fed was not alone in underestimating the strength of inflation that revealed itself in late 2021,” said Mr. Waller, who expected inflation to be slightly higher than many of his colleagues. He noted that the Fed’s policy-setting committee had to coalesce around policy moves, which can take time given its size: It has 12 regional presidents and up to seven governors in Washington.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: Times readers sent us their questions about rising prices. Top experts and economists weighed in.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what the increases mean for consumers.How Americans Feel: We asked 2,200 people where they’ve noticed inflation. Many mentioned basic necessities, like food and gas.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.“This process may lead to more gradual changes in policy as members have to compromise in order to reach a consensus,” Mr. Waller said.Such explanations have done little to shield the Fed so far. Lawrence H. Summers, a former Harvard president and Treasury secretary, suggested earlier Friday that an economic overheating was predictable last year as the government spent heavily and that “it was reasonable to expect that the bathtub would overflow.” Kevin Warsh, a former Fed governor, called inflation “a clear and present danger to the American people,” and declared the Fed’s reaction “slow.”And even as the Fed comes under fire for responding too ploddingly as inflation pressures began to build, a new debate is evolving over how quickly — and how much — rates need to increase to catch up and wrestle fast price increases back under control.The Fed lifted interest rates half a percentage point this week and forecast more to come. Still, Jerome H. Powell, the Fed chair, said officials were not discussing an even larger, 0.75-point move — suggesting that central bankers are still hoping to control inflation without choking off growth abruptly and shocking the economy.“If supply constraints unwind quickly, we might only need to take policy back to neutral or go modestly above it to bring inflation back down,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, wrote in a post on Friday. “Neutral” refers to the policy setting that neither stokes nor slows the economy.Inflation F.A.Q.Card 1 of 6What is inflation? More
