Federal Reserve Chair Jerome Powell wanted to bring the start of March in with a big change, and he made sure Congress knew of his plan. As he delivered a calculated message to the congressional committee, Powell ensured he cautioned about the economic consequences of the attempted Russian takeover of Ukraine. Given the unknown effects of the strong sanctions the U.S. and its allies are putting on Russia, there is cause to be cautious.
This caution now has the Fed planning to hike the rates for the first time since 2018. With planned periodic hikes starting in mid-March, Powell did not provide any information on the timetable or levels of these hikes. This action is not uncommon, but it is unprecedented given how unbalanced things have been as of late.
Powell’s thought process seems to be the idea of lowering inflation but not killing the growth and hiring rates the U.S. is currently experiencing. His bet of being able to do this while unemployment is at 4% is based on people being able to afford slightly higher borrowing rates. A move like this is a risk, even when it is very well calculated.
Powell’s stance on why the best time is now remains very clear. “With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the (benchmark short-term rate) at our meeting later this month… We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation.”
This balance between inflation and higher rates is a delicate one. With inflation high on goods and services, and housing prices artificially inflated by people buying with case and not by taking a mortgage, the rate changes will have little to no effect on the price of housing, but it will, ultimately, make things more difficult for first-time homebuyers. This group is already having horrific challenges as it is.
Rate hikes now are great for balancing inflation, but it is just putting a band*aid on something that needs stitches. This inflation didn’t come out of nowhere. Biden’s actions (or lack thereof) since he took office is why we have such horrific inflation going on. Addressing this factor head-on instead of raising the rates would be a keen idea, but that’s not something Powell can do on his own.
The lack of responsibility being taken by this administration to change things is incredibly careless and shows no desire to change things or make this a better country. Their response to these questions always falls back to the idea of giving in to more of their socialist agenda. They want to see more things go their way under the guise of things only working right if they fully get their way.
While most economists suggest that inflation will go down eventually, they fully expect to see it remain in some form. This is, in part, from the Fed having a $9 trillion balance sheet that doubled during the pandemic. This is largely from the Fed buying bonds to try and hold down longer-term rates – a move that now seems near pointless.
In various statements over the last week, central banks have been toying with the idea of a half-point increase, something that many see as unnecessarily aggressive. This bold move would mean a massive increase in the interest being paid on many mortgages and for other loans. Due to the Russian and Ukrainian conflict, oil has risen by 18% since the start of the invasion. This kind of inflation in the raw goods price gets passed along to the consumer at each level, and it’s not something the American people can maintain forever, either.