Fed Shift to Hawkish Stance Triggers Rate Hike Expectations Amid Stagflation Concerns

The misery index, which combines unemployment and inflation rates, has been cited as a measure of economic hardship. According to the Brookings Institution, the current misery index is around 7.5, compared to a peak near 22 in June 1980 under President Carter.

In July, the U.S. economy lost 23,000 jobs, and 264,000 people left the labor force, resulting in an unemployment rate of 4.1%. This drop is not necessarily due to economic strength but rather a decrease in the number of people seeking employment.

The Fed's voting committee has shifted towards tightening monetary policy since June, with three members dissenting against a hike in July and Warsh himself turning hawkish at the Jackson Hole symposium in August. This shift has led markets to price a 90%+ chance of a rate hike at today's meeting.

The Fed's current trajectory rhymes with 1971, when President Nixon severed the dollar's link to gold and inflation rose sharply. However, the starting point is different, with inflation running above the Fed's 2% target for over five years.