![]() Some on the other side of the aisle might also prefer front-loaded tightening in the hope that inflation is cured and the economy is on the upswing by the 2024 presidential election. For Republicans, rate increases and balance-sheet tightening might make midterm elections easier to win. Many officials might see a political advantage in bigger and faster monetary-policy tightening. Yet, attempting to cool prices via tighter monetary policy is raising the cost of credit at a time when more households are using plastic to pay for essentials. More government spending arguably would exacerbate inflation by further juicing demand. While many lower-income households traditionally voted for Democrats, the party is in an awkward position because it has been unable to pass legislation to help struggling consumers. Quickly rising prices have an outsize impact on lower-income households, especially because inflation is most acute today in basics such as food, gas and rent. Indeed, Powell acknowledged that the economy hasn’t “seen the full effect” of Covid-19 lockdowns. Rate hikes won’t break up monopolies, rate hikes won’t straighten out the supply chain or speed up ships or stop a virus that is still causing lock downs in some parts of the world.” “And why? Because rate hikes won’t make Vladimir Putin turn his tanks around and leave Ukraine. “A Fed increase won’t bring down these prices,” said Sen. Thom Tillis of North Carolina.ĭemocratic members, in turn, reminded viewers that gas, food, and rent are the biggest drivers to inflation currently. economy, these actions are long overdue,” said Sen. “Though I’m pleased you have begun taking drastic action necessary to right the U.S. ![]() Republican legislators also criticized the Fed for delaying drastic action on curbing inflation. Republican members of Congress hammered the inflation issue, pointing to stimulus spending by the Biden administration, in addition to energy policies that have reduced supply. Available data for May suggest the core measure “likely held at that pace or eased slightly” last month. Total personal consumption expenditures rose 6.3% on a yearly basis in April, or 4.9% excluding volatile food and energy categories, Powell said. ![]() In fact, they’re as glum as they have ever been, according to the University of Michigan’s latest sentiment survey, which was launched in 1978. Rising prices are making consumers increasingly miserable. Powell’s comments are being parsed in light of various concerns. “At some point in coming months the focus of vote-seeking American politicians is likely to switch from worrying about the need to be seen to be doing something about inflation to worrying about the impact of monetary tightening on Americans’ 401(k) plans,” he says. Whether that degree of monetary tightening actually happens will depend as much on politics and the markets as the economy, says Christopher Wood, global head of equity strategy at Jefferies. Top Economist Says a Recession Is Inevitable.Legislators focused their questions to Powell on the trajectory of inflation and the odds of a recession. Powell delivered the central bank’s semiannual monetary-policy report to the Senate Banking Committee on Wednesday, one week after the Fed initiated the biggest interest-rate increase in about three decades. ![]() And frankly, the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2% inflation and still a strong labor market.” “It’s not our intended outcome at all,” Powell said. That said, Powell acknowledged raising interest rates could drive the economy into recession. “We will make our decisions meeting by meeting, and we will continue to communicate our thinking as clearly as possible,” Powell said. The Fed is anticipating that ongoing rate hikes will be “appropriate,” while the pace of those changes will depend on the data, he added. Powell reiterated that the Fed will be reacting as more information about the economy comes out.
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