Bloomberg Surveillance · Wednesday, August 5, 2026
The Federal Reserve's credibility has been damaged by past inflation predictions, but its current policy is data-driven rather than reactive. While inflation is slowing and nearing the 2% target, the Fed is unlikely to cut rates unless the labor market shows significant weakness. The current stance is described as 'modestly restrictive,' with no immediate need for further hikes.
“You don't restore the two things on that one. Number one, you don't restore credibility, And I agree credibility has been damaged. Right. This is a FED that said inflation is transitory, and five years later we still have above target inflation. So clearly there's been a hit to credibility.”
“You establish credibility by watching the data and affecting the appropriate policy to bring inflation down.”
“If the unemployment rate starts moving up again, then it will no longer just be a question of what's the right rate to set for inflation. Then you'll be concerned about the labor market.”