The Fed Is on a Collision Course With Investors. What to Expect.


Credibility gap. For those of a certain age, that term harks back to the Vietnam War era, when the government’s version of the conflict varied significantly from what was happening on the ground.

The Federal Reserve might have its own credibility gap, but instead of sugarcoating the economic situation, it insists that it will maintain a tight policy to push down inflation to its 2% long-term target. That tack is justified by what the central bank officials see is a tight labor market and persistent upward pressure on prices, notably of services, excluding housing measures (which tend to lag behind current conditions).