![]() ![]() Powell said officials aren’t likely to withdraw support from the economy by lifting rates at the same time they’re adding support by purchasing bonds. ![]() Last month, the Fed accelerated the phaseout of its bond-buying stimulus to pave the way for earlier and faster rate increases. Although higher interest rates can’t fix supply snags, they can tamp down the strong consumer demand – stoked by federal stimulus checks and enhanced jobless benefits – that amplified the product shortages and price gains. Used cars, hotel rates and airline fares bore the brunt of the spiraling costs.īut at a congressional hearing in late November, he acknowledged that higher prices affected a broader range of products and services and the supply chain bottlenecks behind much of the advances could linger well into 2022. Last year, Powell called the price surges “transitory” and traced them to the pandemic and reopening economy. In the third quarter, wages and salaries climbed at the fastest pace in two decades, raising concerns of a wage-price spiral that could be difficult to contain. Inflation hit a 40-year high of 7% in 2021, and Fed policymakers feel a growing sense of urgency to tame it. A smaller labor supply could prolong widespread worker shortages and drive wages and inflation higher, providing the Fed another reason to act swiftly. Powell said it probably will take longer than anticipated for Americans to return to the workforce, and many, including millions of early retirees, never will. The interest rate on federal student loans taken out for the 2022-2023 academic year already rose to 4.99, up from 3.73 last year and 2.75 in 2020-2021. Millions of Americans remain outside the labor force – the pool of people working and looking for jobs – because they fear COVID-19 or struggle to find child care, switched careers or live off relief checks or enhanced unemployment benefits. But payrolls are still 3.6 million workers shy of their pre-pandemic mark. Unemployment fell to 3.9% in December, not far above its pre-COVID-19 level of 3.5%, a 50-year low. In early November, Powell said officials would be patient and hold off on raising rates so the economy could reach full employment – an environment in which virtually anyone who wants a job has one. In March 2020, as the COVID-19 crisis upended the economy, the Fed slashed its benchmark rate to near zero and launched the bond buying. In an effort to cool off the economy and get inflation to its target rate, the Federal Reserve began to increase the Fed funds rate rapidly throughout 2022. Wednesday’s moves mark a turnabout for a central bank that had been focused on helping the nation heal from the recession and 22.4 million job losses caused by the pandemic. "The economy no longer needs a sustained level of monetary policy support," Powell said. Powell said officials expect the surge and its economic effects will be temporary. Overall, the Fed depicted an economy that has "continued to strengthen" – presumably allowing it to get by with less support from the central bank – but that is affected by the COVID-19 surge triggered by the omicron variant of the coronavirus. SAVE BETTER, SPEND BETTER: Get daily money tips and advice sent to your inbox. ![]()
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