The 2021 fed pivot and the macro consequences of non‐transitory inflation

Abstract The Federal Reserve has a dual mandate of 1) price stability and 2) full employment, which are sometimes contradictory and difficult to achieve simultaneously. Thus, in certain macro environments, the Fed has to prioritize one mandate at the cost of the other. In 2021, after a long period of prioritizing the full employment mandate, the Fed had acknowledged that the building inflationary pressures are likely non‐transitory, which signals that the Fed has potentially made the policy pivot to prioritize the inflation mandate. This article discusses the likely macro consequences of the 2021 Fed pivot.