The Federal Reserve has reached a delicate stage in its fight against inflation.
Its policymakers have raised their key interest rate to about 5.4%, its highest level in 22 years, to try to slow borrowing and spending and cool inflation pressures. They now are considering whether to raise the rate even higher — a move that would heighten the risk of a recession — or leave it at its current level for an extended period.
Q: Since March 2022, the Fed has rapidly raised its key rate. Yet unemployment has stayed remarkably low. How has the economy withstood the higher borrowing costs? I think there’s still a fair amount of momentum in the economy. And when I talk to bankers and others, they will tell me that a lot of their customers still have savings balances that are higher than they were pre-pandemic. And so that is going to allow them to be more resilient then we might expect otherwise, while the other difficulties in the economy start to resolve themselves like supply chains and that kind of stuff. I think that’s pretty much what we’re seeing right now.A.
And again, I talk to business leaders, what they tell me is the slowdown is here and it’s showing up in specific ways. The degree to which the slowdown is occurring is broadening. And there are increasing parts of the economy where people are telling me they’re starting to see more and more slowdown. But things are still quite robust overall.A. I never use the words “soft landing.” But I will say this: A recession has never been in my outlook.
Q. Do you see keeping the Fed funds rate high for a longer period as one way to combat inflation, as opposed to raising it more?
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