The most pressing issue for the remainder of the third quarter will be the Federal Reserve's objective of reinforcing its optimal control framework in the face of higher inflationary pressures.
While the Federal Reserve is tasked with promoting full employment and price stability, the objective of reaching full employment has not yet been achieved. Under its framework of optimal control, the Fed will be more tolerant of adverse moves in one objective if it is still far from achieving the second objective. This means that it is willing to tolerate a little bit of inflation because it believes there is still slack in the labour market. Short rates and market volatility have been kept low as a result of the Fed's message that monetary policy will be kept looser for longer. But co...
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