Part 5/9:
Discussing the framework guiding Fed actions, Hassett pointed out that while rules-based approaches exist—like the Taylor Rule—they often fall short because they rely on assumptions that may not hold in complex, real-world scenarios. He criticized the traditional Phillips curve as being less predictive, given that unemployment and inflation results can stem from supply or demand factors.
"It's much more prudent for the Fed to look at all the models, to have a diversity of opinions, and decide based on real-time data," he stated. The recent rate decision, in his view, exemplifies this cautious, data-dependent approach rather than rigid adherence to strict rules.