JUDY WOODRUFF: The Federal Reserve ramped up efforts to fight inflation with a notable interest
rate hike today. Officials voted to raise the Fed's benchmark rate by three-quarters-of-a-point.
That is a jump higher than expected just a week ago. Federal Reserve Chair Jay Powell
acknowledged that the ongoing series of hikes meant to tamp down inflation might also slow
growth later this year. And the Fed projected unemployment would rise to 4 percent by 2024.
Our economics correspondent, Paul Solman, reports on the Fed's plan to get more aggressive.
PAUL SOLMAN: Today's interest rate boost of three-quarters-of-a-percent,
the Fed's most dramatic since 1994.
Chair Jerome Powell:
JEROME POWELL, Federal Reserve Chairman: Contrary to expectations, inflation again
surprised to the upside. Indicators -- some indicators of inflation expectations have risen.
And projections of this year have moved up notably. So
we thought that strong action was warranted at this meeting. And, today, we delivered that.
PAUL SOLMAN: It's to combat inflation we Americans haven't seen take off like this in 40 years,
suddenly, rents through the roof, the price of eggs up 32 percent over last year,
unaffordable used minivans, and filling up for that trip to the store in the
car you can no longer afford up 50 percent from just last year.
Hey, it now cost me $80 to fill up my supposedly economical Subaru.
So, the typical American household is spending something like $400 to $500 more per month
for the same stuff they bought last year. The Fed was planning a more modest interest rate hike,
but, Friday, the Consumer Price Index pinged 8.6 percent, forcing the Fed to adjust.
JEROME POWELL: Clearly, today's 75-basis-point increase is an unusually large one,
and I do not expect moves of this size to be common.
Our overarching focus is using our tools to bring inflation
back down to our 2 percent goal and to keep longer-term inflation expectations well-anchored.
PAUL SOLMAN: Higher interest rates are the Fed's key inflation tool.
Seth Carpenter, chief global economist at Morgan Stanley:
SETH CARPENTER, Chief Global Economist, Morgan Stanley: So, what the Fed is trying to do is
raise interest rates to make credit more expensive for households and businesses to borrow and then
spend, and through that mechanism bring down the amount of spending going on in the economy,
and, by reducing the amount of spending in the economy, try to bring down inflation.
PAUL SOLMAN: But will it. Are the forces here, pandemic, global supply chains, war in Ukraine,
simply greater than anything a central bank like the Fed can cope with?
SETH CARPENTER: There is no playbook that the Fed can follow, looking back over the past 10,
20, 30, even 50 years, to try to understand exactly how to navigate these times.
PAUL SOLMAN: Rising inflation and perhaps the Fed's reaction to it
has sent stocks tumbling, with the S&P down more than 20 percent from its record high,
a so-called bear market that puts Wall Street for the moment into hibernation.
The big question, how long will the inflation last? And, related, how critical is the Fed
to containing it? Some critics contend the Fed has done too little too late.
You one of those critics?
SETH CARPENTER: I mean, I think it's very easy
to criticize the Fed. They're in a very, very difficult position.
PAUL SOLMAN: But they are playing catchup?
SETH CARPENTER: Well, I think that's probably true. Inflation picked up very,
very quickly. It seems to be very broadly based now. And there is always a lag between the
increase in interest rates and the way that can slow spending in the economy
and then, from slower spending in the economy, to bringing down inflation.
PAUL SOLMAN: The last great inflation surge was in the 1970s. Then Fed Chair Paul Volcker
is credited with crushing it and the economy by raising interest rates as high as 20 percent.
It's now being said that Chairman Powell is trying to pull a Paul Volcker, no?
SETH CARPENTER: Well, I think it remains to be seen whether
severe recession is what's critical, or if there's some slowdown in the economy
that is shy of that kind of recession can do the trick in order to bring inflation down.
And if anyone says they know for sure,
they're either lying to themselves or they're lying to you.
PAUL SOLMAN: There's also this to consider. Had the Fed done too much too soon, it could
have choked the economy during a pandemic, killing jobs, freaking out markets, inducing a recession.
Longtime economics journalist David Wessel of the Brookings Institution:
DAVID WESSEL, Brookings Institution: Chairman Powell at his press conference today was emphatic.
He is determined to bring inflation down,
and particularly to prevent inflation from getting embedded in people's expectations.
And he said it over and over and over again. And I think he means it.
PAUL SOLMAN: Could he really have moved much earlier, in the midst of a pandemic?
DAVID WESSEL: It's just that we have 8.6 percent inflation,
and it's hard to escape the fact that the Fed's target is 2 percent.
So they probably could have moved a little sooner. I think they have made up for it.
It is a remarkably sharp shift in Fed policy in the last six months,
the fastest I have ever seen since Paul Volcker.
PAUL SOLMAN: So, what's ahead for the Fed? More hikes this year, said Powell today,
as he tries to tamp down inflation before it becomes self-fulfilling.
JEROME POWELL: So, thank you very much.
PAUL SOLMAN: For the "PBS NewsHour," Paul Solman.