“Once inflation gets above 5% it’s never come down unless fed funds have gotten above the CPI.” –Stan Druckenmiller

As I first noted here a couple of months ago, despite the Fed’s aggressive rate hike campaign over the past year, the funds rate remains below CPI. As such, it’s hard to call current policy “hawkish” in the context of history. In fact, on this basis, the fed funds rate has now been negative in real terms for nearly 40 months running. Only in the aftermath of the Great Financial Crisis have we ever seen a longer stretch during the post-war era. Of course, this was understandable at the time because the disinflationary impulse of the crisis enabled an extreme monetary response. Today, in contrast, inflation is running at its hottest levels since the Great Inflation of the 1970s and early-1980s. And back then, Arthur Burns didn’t even manage to pull off such a feat of protracted dovishness.

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