Written by Dan Hamilton | December 16, 2025
The Fed’s Policies Regarding Inflation
U.S. inflation averaged 2.2 percent from January 2000 through December 2019. From January 2021 to now (for nearly five years) it has averaged 4.6 percent. This is more than double the Federal Reserves stated inflation target. In June 2022, inflation as measured by the CPI hit 9.1 percent. The Wall Street Journal described the policies which led to this inflation as the “greatest monetary policy mistake since the 1970s.” CERF agrees.
In the Fall of 2024, media reporting suggested that the J. Powell Fed had achieved a “soft-landing”. An economic soft landing is where the Fed utilizes their policy instruments to slow the growth of the money supply, which brings inflation down to its two percent target from a rate that was higher than two percent for a sustained period of time. Critically, a soft landing is when the Fed accomplishes this without inducing a recession. CERF responded with a November 7, 2024 article explaining why the Fed had not achieved a soft landing and still today, has not.
There may have been an unfortunate consequence of the media declaring a soft-landing in 2024, which was to embolden an already mis-directed Fed to continue making policy mistakes. The Fed reduced its short-term interest rate target from August 2024’s 5.25 percent level, in a sequence of cuts, to 4.25 percent in December 2024. One hundred basis points is a large move. The Fed’s preferred measure of inflation averaged three percent during September to December of 2024 (50 percent above target) and was rising during this time. The Fed abandoned its job of fighting inflation in the fourth quarter of 2024.
In 2025, the Fed’s preferred measure, the core measure of the personal consumption expenditure (PCE) index, rose from 2.6 percent in April to 2.9 percent in August. Using these year-on-year figures, inflation has been rising every month for 4 months. This pattern is repeated across all four traditional measures of inflation, which include the PCE and CPI for each of all-items and core measures. Despite this, the Fed cut rates in its September, October, and December policy meetings. This is yet another Fed failure and it signals the Fed has no intention of fighting inflation.
The Fed’s policy stance involves an ongoing increase in the money supply. The October 2023 level of the money supply was 35 percent higher than it was at the beginning of 2020. From October 2023 until now the money supply has risen every month and is yet another 8.5 percent higher as a result. The Fed is cutting rates in a situation where both inflation and money supply are rising.
CERF is a member of the WSJ Economic Forecast Survey, a prestigious roster of more than 70 economic forecasting houses. The WSJ has repeatedly asked its survey members to provide a letter grade for the performance of the current Federal Reserve Chairman Jerome Powell. CERF’s “grade” of Chair Powell is an F. The Fed’s policies are unsuccessful in the control of inflation. While the entire board of governors shares responsibility, there is a greater weight of this grade on the Fed Chair himself, given the power of that position.
The Fed’s Mandate
The Fed is working under a dual mandate, to achieve stable prices and maximum employment.
Inflation is calculated via hundreds of consumption categories, including groceries, transportation, shelter, and apparel. Many such items are necessities which comprise a higher percentage of a lower-income household’s budget than a higher-income household’s. While a wealthy household might experience sticker-shock from the inflation we have experienced since 2020 (the cumulative impact is 26 percent), they will easily pay the price. This is not the case for low- and middle-income households, where, simply put, fewer purchases must be made.
According to recently released Census Bureau data 2024 inflation-adjusted median household income is essentially unchanged since 2019. To illustrate this impact, using 2012 to 2019 average growth, we would expect 2024 median income to have been $97,000. The actual result was $84,000, a difference of over 15 percent. These data imply that the Fed’s failure to battle inflation is harming the working class.
The Fed should not have an employment mandate. The connection between the Fed’s overnight interest rate target and the labor market is, at best, distant and weak. While historic Macroeconomic thought adhered to a connection between inflation and unemployment, evidence indicates that a connection no longer exists, if it ever did. See Hoover Institution economist John Cochrane for an explanation. With this, mandating that the Fed stimulate the labor market is disingenuous. It does not have the tools to achieve this result. Given that the Fed is failing on its inflation mandate, and given that it is destined to fail in stimulating the labor market, CERF calls for a new single Fed mandate, which is to focus exclusively on price stability.
Readers should be clear-eyed. The evidence is strong that the Fed does not attempting to reign in inflation. The Fed has demonstrated in the past that it is captured by financial markets. Might it desire to reduce interest rates in order to boost the stock market? The Fed has also made statements of encouragement to ever-greater government spending. Might it want to facilitate greater fiscal outlays by keeping rates low? The Fed’s balance sheet policy is congruent with a Fed that is accommodating extraordinary government expenditures.
What Should We Do?
The Fed has become a liability to main street America. It is ill-equipped to manage the labor market and has serially violated its inflation mandate. The Fed is likely to continue conducting policy in a direction that will stimulate even greater inflation.
Representatives and senators in Washington DC should enact change at the Fed. The Fed should have a single mandate. They should focus on price stability.