Trust Breakdown Between Fed, Consumer Inflation: Kroszner

Summary

Former Fed Governor Randy Kroszner discusses inflation trajectory, the Fed's measurement choices, and a breakdown in consumer trust. He expects inflation to approach 2% within 12-18 months but warns that real wage growth remains a risk. The proliferation of risky behaviors like crypto and meme stocks signals eroded faith in the central bank, while long-term challenges such as Social Security reform remain politically difficult.

• Kroszner sees US inflation reaching near 2% within 12-18 months, not in the immediate future.
• He explains that core PCE and Dallas trimmed mean measures aim to filter out volatile components for better forecasting.
• The key risk is whether real wage growth will outpace prices; AI could boost productivity and real wages.
• A meaningful breakdown of trust in the Fed emerged after the 'transitory' inflation misstep, pushing some toward crypto, meme stocks, and prediction markets.
• Kroszner says the new Fed chair will focus on long-term trends and productivity to restore credibility.
• Social Security reform will require political will, with raising the retirement age as an obvious potential fix.