![]() That means that families are falling behind as they try to afford gas, food and rent, even in a very strong labor market. As prices surge, worker pay is not keeping up. While the economic path ahead may be a rocky one, the Fed’s policymakers contend that things would be worse in the long run if they did not act. The economy remains strong for now, but the Fed’s actions are beginning to have a real-world impact: Mortgage rates have risen sharply and are helping to cool the housing market demand for consumer goods is showing signs of beginning to slow as borrowing becomes more expensive and job growth, while robust, has begun to moderate. Powell’s news conference, most likely because investors had already expected the Fed to make a large move. On Wednesday, the S&P 500 rose 1.5 percent, climbing after the release of the decision and Mr. Stock prices have been plummeting and bond market signals are flashing red as Wall Street traders and economists increasingly expect that the economy may tip into a recession. “There is that growing acknowledgment that a soft landing is increasingly difficult - I still think they’re painting a fairly rosy picture.” “The Fed is becoming a bit more realistic about how difficult it is going to be to lower inflation without inflicting damage on the labor market,” said Sarah House, a senior economist at Wells Fargo. George has historically worried about high inflation and favored higher interest rates, she would have preferred a half-point move in this instance. One Fed official, the president of the Federal Reserve Bank of Kansas City, Esther George, voted against the rate increase. “We thought that strong action was warranted.” Powell said at his news conference Wednesday, noting that instead the inflation situation has worsened. “What we’re looking for is compelling evidence that inflationary pressures are abating, and that inflation is moving back down,” Mr. Economists think that expectations can be self-fulfilling, causing people to ask for wage increases and accept price jumps in ways that perpetuate high inflation. And consumers are beginning to expect faster inflation in the months and years ahead, based on surveys, which is a worrying development. While the Fed’s preferred price gauge - the Personal Consumption Expenditures measure - is climbing slightly more slowly, it remains too hot for comfort as well. The pace was brisk even after the stripping out of food and fuel prices. The Consumer Price Index jumped 8.6 percent in May from a year earlier, the fastest increase since late 1981. The Fed had lifted rates by a quarter point in March and half a point in May, and had signaled that it expected to continue that pace in June and July.īut central bankers have received a spate of bad news on inflation in recent days. Until late last week, investors and many economists expected the central bank to raise interest rates just half a percentage point at this week’s meeting. “The focus is greatly on inflation right now.” are saying is that restoring price stability is the primary focus - if they risk a mild recession, or a bumpy soft landing, that would still be successful,” said Kathy Bostjancic, chief U.S. “What Powell and the rest of the F.O.M.C. They also foresee the Fed’s policy rate peaking at 3.8 percent at the end of 2023, up from 2.8 percent when projections were last released in March. Officials expect interest rates to hit 3.4 percent by the end of 2022, according to economic projections they released Wednesday, which would be the highest level since 2008. Powell signaled that the debate at the Federal Open Market Committee’s next meeting in July will be over whether to raise rates half a point or to repeat an increase of three-quarters of a point, though he added that he did “not expect moves of this size to be common.” The latest move set the Fed’s policy rate in a range of 1.50 percent to 1.75 percent, and more rate increases are to come. Powell said, explaining that the Fed still wants to reduce inflation to its 2 percent goal while keeping the labor market strong - an outcome economists call a “soft landing.”īut “those pathways have become much more challenging due to factors that are outside of our control,” he said, later adding that “the environment has become more difficult, clearly, in the last four or five months.” “We’re not trying to induce a recession right now, let’s be clear about that,” Mr.
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