The chair of the Federal Reserve. Jay Powell acknowledged today that
he and the wider Federal Reserve Board had underestimated the threat
of inflation last year, But with the annual inflation rate now closing
in on 8%. That attitude has changed, and Powell committed to ramping
up a fight against ever rising prices beyond what had even been projected.
John Yang has the story. Judy Today's rate increase, and the prospect
of more to come this year is a sharp reversal from just two years
ago when the Fed cut rates to near zero to support the economy as
the pandemic shut much of it down.
Nick Timiraos is the Wall Street Journal's chief economics correspondent.
He's author of a new book on the Fed's response to the Pandemic.
Trillion Dollar triage, Nick. Thanks so much for joining us.
Today's quarter point increase was widely expected, but the roadmap
ahead of the prospect of more increases through the year through
this year.
Was not how much more aggressive is this fed stance than what had
been anticipated. And what's the fret fed trying to accomplish here?
Well, it is more aggressive than what had been anticipated. Though
investors in bond markets had begun to sense the Fed might raise
rates at every meeting this year, and that is what the Fed projected
this this meeting today.
They said they could raise rates at their six remaining meetings
this year. That would be a faster pace of increases than into that
since 2000 and five
The problem here is that supply and demand her out of whack. And
as you mentioned, the Fed misjudged this last year, and so now they're
trying to catch up. And how is this going to affect average Americans?
Mortgage rates?
Car loan rates credit card rates
Even before the Fed raised interest rates today, you had seen borrowing
costs go up because the Fed had effectively signaled they were going
to do this, so mortgage rates have gone up.
By more than a percentage point in just the last two months. You're
saying it's getting more expensive for businesses to borrow in the
corporate bond market, and that should continue as the Fed
Becomes more and more hawkish about dealing with these supply and
demand imbalances. You know, the Fed can't do anything about busted
supply chains, but they can fix demand. They can reduce demand, and
that is what higher interest rates eventually will do. They will
reduce job growth.
Slow the pace of wage growth. That is how the Fed fights inflation.
When Jay Powell says we will use our tools he's talking about slowing
economic growth.
What did Powell say about the or how does he assess the risks of
what's going on in Ukraine and the geopolitical situation?
Yeah, that's it. It's a tough time for the Fed because they had been
counting on supply chains improving at the beginning of the year,
they thought inflation would come down largely
As these bottlenecks east and it's a little bit like the Mike Tyson
quote. Everybody has a plan until they get punched in the face and
what the Ukraine War does to the Fed. It's It's a blow because
You now have more disruption in supply chains, oil prices, commodity
prices, and on top of that you have China, large parts of China manufacturing
hubs going back into lockdown, so that will keep
Pressure on inflation for longer than the Fed was anticipating. And
at a certain point, you know 9% 10% inflation.
The federal get concerned that consumers and businesses will expect
prices to be high for longer and that is how you start a wage price
spiral that we don't want to have in this country. We've heard some
economist Larry Summers, the former Treasury secretary, among them
say that this is too little too late.
To really fight inflation. And then today you had
on Wall Street traders saying that that it was too much that it could
tip the economy into a recession. What did Powell have to say about
those? Those criticisms?
Well, Powell was asked about whether this would you know whether
there was a rising risk of recession and as one analyst put it, You
know the fact he's even being asked. The question isn't great. If
the feds your has to say no recession, it suggests that the risk
is rising somewhat. I think the takeaway, though, from all of this
Is that if you look back two years are right about this in my book
two years ago when the pandemic was bringing commerce to a halt power,
uh, you know, got after his colleagues a little bit and said it feels
like we're swimming after a speedboat. We need to do more. We need
to get ahead of this.
And it seems as if right now the Fed is in a similar place. Obviously,
with the risks coming from the completely opposite direction, they
need to find that gear where they can get interest rates up faster,
but not so fast that you know they crashed the plane here and you
have a hard landing.
Nick Timorous of the Wall Street Journal. Thank you very much.