Fed Chair Jay Powell now has little choice but to go bigger on rate hikes in a world of high inflation. Doing so is long-term rational, and short-term villainous, writes GinaChon:
Gas prices over the $8.00 mark are advertised at a Chevron Station in Los Angeles, California, U.S., May 30, 2022. REUTERS/Lucy NicholsonWASHINGTON, June 10 - The nice-guy central banker has no place in a world of high inflation.in the United States jumped by a forecast-busting 8.6% in May, year-over-year. Federal Reserve Chair Jay Powell now has little choice but to go bigger on rate hikes, inflicting more pain on people already struggling with high food and gas prices.
Friday’s inflation numbers punctured the theory – borne out by economists surveyed by Reuters – that prices had steadied in May. Instead, they jumped to their highest level since 1981. Grocery costs rose even more than the headline number with a nearly 12% year-on-year increase, the Labor Department said on Friday. Gas, the life-blood of the U.S. economy, was up almost 49% from a year ago.
Powell’s only option is to hurt Americans more. Last month, he essentially ruled out rate increases of more than 0.5 percentage points at a time. With inflation surging rather than receding , he may have to consider larger hikes – say, three-quarters of a percentage point – that will make credit-card balances and mortgages more expensive, and possibly tip the economy into a recession.
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