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Policymakers at the US Federal Reserve (Fed) reached a milestone Wednesday by keeping the US central bank’s benchmark overnight rate unchanged for the first time after 10 consecutive rate hikes.

Fed officials still expect interest rates to rise by as much as half a percentage point by the end of the year, but the decision nevertheless puts an end to dealing with the economic fallout from the coronavirus pandemic. .

how did they get here?

Using a framework sometimes used to describe how people react to tragic or unfortunate events, Fed Chairman Jerome Powell’s evolution since the first signs of accelerating inflation in early 2021. Words tell stories.


Inflation was still below the Fed’s 2% target, but Los Angeles Times reporter Don Lee’s prescient question about the potential for oversaving and overspending prompted March 17, 2021. began to rise when Powell responded at a press conference on It will be a temporary rise in prices, but future inflation will not change. ”


That might be too strong a word for Mr. Powell, who is notoriously calm in public. But his initial description of inflation as “temporary” quickly proved to be a jarring one, prompting sharp questions about what exactly that meant at a press conference on July 28, 2021. In response, “The concept of ‘temporary’ is actually this. It is


At the annual Jackson Hole Fed meeting in Wyoming, Powell systematically laid out what to monitor to see if inflation persists further. But he wasn’t yet ready to relinquish his focus on healing the U.S. job market from the possible scars of the pandemic.

In a speech on August 27, 2021, he balanced two aspects of the Fed’s mandate: “Long periods of unemployment can permanently harm workers and the economy’s productive capacity. We know that, but history also teaches us that central banks cannot take for granted the disappearance of temporary inflation.”


In this arguably low point, the data on wages and other aspects of the economy quickly went wrong when Powell set out his criteria for assessing inflation.

His opening remarks at a press conference on September 22, 2021 sounded like surrender: “As the economy continues to reopen and spending continues to recover, supply, especially in some sectors, will continue to decline.” We see upward pressure on prices as bottlenecks restrict production from responding quickly.” These bottleneck effects are larger and longer-lasting than expected, leading to upward revisions to participants’ inflation expectations. ”


The Fed phased out pandemic-era bond purchases by March 2022 and began raising interest rates, but inflation continued to accelerate.

The Fed over-accelerated rate hikes, which Chairman Powell explained in this comment on June 15, 2022: “Unexpectedly, inflation has been revised upward again in a surprising way. That indicator has risen, and (inflation) forecasts for this year have risen significantly.” As such, we believe strong action is justified at this meeting, and today we have announced a 75-basis-point It did so in the form of a raise. ”

Sense of guilt

Guilt, like anger, may be too strong a word. But as time went on, Powell became more open to admit that the Fed’s inflation forecasts were wrong, and more outspoken that damage to the job market may be necessary.

Speaking again at the Jackson Hole conference on August 26, 2022: “Rising interest rates, slowing growth and softening labor market conditions will lower inflation, but will also cause some pain to households and businesses.” These are the unfortunate costs of keeping inflation under control. ”


The final chapter on inflation has not yet been written. Measured by the Fed’s preference criteria, it still holds double the central bank’s target of 2%.

But at Wednesday’s press conference, Powell expressed some comfort in the fact that inflation is slowing, unemployment remains low and rate hikes are coming to an end, and he called the SEP (Summary of Economic Outlook). ), we believe most people are not far from their destination.”

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