July 5, 2022

Fed Set to Lift Rates as ‘Soft-ish Landing’ Becomes a Harder Sell

It’s not just Wall Street that is increasingly glum. Consumer confidence fell to its lowest level on record in preliminary data from the University of Michigan survey, and expectations of higher unemployment in a New York Fed survey have been picking up.

Even if the Fed is also becoming more uncertain about its chances of setting the economy down gently, Mr. Powell may not say that. Coming from a top central bank official, a prediction that the economy is headed for tough times might become a self-fulfilling prophesy, shattering already fragile confidence.

“They went from soft to soft-ish — I don’t think there’s another term they can use to say ‘not a complete disaster,’” Ms. Misra said. “I think the markets are calling their bluff, that they won’t be able to achieve it.”

A recession would spell trouble for the White House. President Biden has been sure to emphasize that the Fed is independent and that he will respect its ability to do what it deems necessary to bring inflation under control, even as his approval ratings crack and as the economy heads toward a potentially tough transition period.

“The Federal Reserve has a primary responsibility to control inflation,” Mr. Biden wrote in a recent opinion column. He added that “past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.”

Even so, some have argued that the central bank should not be the only game in town when it comes to controlling inflation, given the pain its policies inflict. Skanda Amarnath, executive director of the employment advocacy group Employ America, argued that the White House should be taking more aggressive actions to improve gas supply, for instance, to try to offset inflationary pressures.

Article source: https://www.nytimes.com/2022/06/14/business/economy/federal-reserve-rates-economy.html

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