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“The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point [last] Wednesday — its most aggressive move since 2000 — and signaling further large rate hikes to come.” AP News
“America’s employers added 428,000 jobs in April… Friday’s jobs report from the Labor Department showed that last month’s hiring kept the unemployment rate at 3.6%, just above the lowest level in a half-century.” AP News
The right criticizes the Fed’s slow response to inflation and urges it to raise rates even faster.
“It would be a gross understatement to say that the Fed, led by chair Jerome Powell, made major policy mistakes last year. At a time when the economy was growing strongly and receiving its largest peacetime budget stimulus on record, the Fed chose to keep its pedal to the monetary policy metal. It did so by keeping its policy rate at its zero-lower bound despite rising inflation…
“Similarly, last year at a time when the equity, housing and credit markets were on fire, the Fed chose to keep fueling those markets with additional massive doses of liquidity. It did so by buying $120 billion a month in Treasury bonds and mortgage-backed securities…
“It should have been little wonder then that consumer price inflation surged to 8.5 percent with such an extraordinarily easy monetary policy stance. Nor should it have come as a surprise with so much liquidity sloshing about that by the end of last year we had bubble-like conditions in the housing, equity and credit markets as well as a debt party in the emerging market economies.”
Desmond Lachman, The Hill
“The question [now] is whether this leisurely pace of monetary tightening is sufficient to reduce inflation. There is reason to wonder. Monetary policy remains remarkably loose, with a fed funds rate pegged to 0.75%-1%. Even if the Fed follows with a pair of 50 basis point increases at its next two meetings, real interest rates will remain negative…
“The history of rapid inflation is that it takes a fed funds rate that is higher than the pace of price increases to break inflation. If Mr. Powell is right that inflation is about to head downward, and perhaps rapidly, then his slow pace of tightening may pay off. But if inflation stays doggedly high, he is storing up tougher tightening decisions down the road.”
Editorial Board, Wall Street Journal
“The elected parts of government aren’t doing much to help the situation. Congress and the president continue to lack a strong commitment to bring spending back under control. The more that government debt increases relative to GDP, the harder it is for the Fed to raise interest rates, because doing so increases the cost of government borrowing as well…
“You could be forgiven for thinking that President Biden actually wants inflation to increase, based on his administration’s policies. It’s keeping existing supply constraints — such as tariffs, shipping regulations, and domestic-content requirements — in place while adding new constraints, such as stricter environmental regulations and new union-pleasing labor rules. It’s also goosing demand through further deficit spending, subsidies, and (if it goes through) student-loan forgiveness. Restricting supply while increasing demand is a recipe for higher prices, no matter what the Fed does.”
Dominic Pino, National Review
The left is generally supportive of the Fed’s response to inflation and notes that the economy is holding up well.
The left is generally supportive of the Fed’s response to inflation and notes that the economy is holding up well.
“This is not a time to panic. The U.S. economy is showing a lot of resilience. Job openings hit a record high in March and 428,000 jobs were added in April, with gains in nearly every industry. The unemployment rate is basically back at precrisis lows. Black workers and workers with a high school diploma (but no college) are seeing encouraging improvement as well. Overall, this has been the fastest job market rebound in decades. Families and businesses continue to spend, helping propel more growth and jobs…
“The reality is that the stock market and many parts of the economy were overheated at the start of this year and needed to cool down. Home prices have skyrocketed more than 30 percent since the start of the pandemic… It’s a similar story for stocks, which rose rapidly in the past decade of ultralow Fed interest rates… Even with the recent pullback, the Dow is still up more than 55 percent in the past five years.”
Editorial Board, Washington Post
“Perhaps we’ve gotten accustomed to (even spoiled by!) similar headline [jobs] numbers in recent months. Over the past year, job growth has averaged more than half a million new positions on net each month. But step back a bit and you’ll realize how remarkable the pace of hiring has been…
“Fed officials have argued that even if higher interest rates end up reducing demand for workers, that won’t necessarily cause people to lose their jobs. Why? As of March, there were about twice as many jobs open as there were unemployed workers available to fill them… Despite the strong jobs numbers to date, we might nonetheless be in for a bumpy ride in the year ahead.”
Catherine Rampell, Washington Post
Some argue that “Raising costs of borrowed money will do nothing to ease the supply chain crisis, nor moderate the shortage of affordable housing that leads landlords to raise rents. In fact, it will worsen inflation by translating into more costly mortgages, car loans, and credit card purchases. Higher interest rates will not reduce corporate price-gouging. Nor will they cut the price of gas that results from the dislocations of the Russia-Ukraine war…
“What’s needed is a clearer narrative and better policies. For starters, Biden aggressively could go after industries that are taking advantage of the inflationary psychology to gouge consumers. That includes airlines that have raised prices far beyond the increases in the cost of aviation fuel, and drug companies that keep jacking up costs of prescription medication, and monopolies in the food industry… There is no instant cure for this inflation, but government can do two big things. It can avoid making things worse by triggering a recession, and it can pursue policies that help consumers.”
Robert Kuttner, American Prospect
