All of the worst puns are saved for the most important central bank meetings.
Yesterday, Fed Chair Jerome Powell raised interest rates by a half-percentage point. It’s a) the greatest rate hike since 2000, and b) the first time the Fed has raised rates in consecutive meetings since 2006.
This isn’t your typical move, but these aren’t your typical times. In March, consumer prices rose by 8.5 percent yearly, the largest rate in 41 years and well beyond the Federal Reserve’s 2 percent objective. Given that one of the Fed’s key jobs is to keep prices steady, opponents argue it has been a complete slacker over the last year and needs to get hiking to bring inflation down from its astronomical levels.
That message has reached the Fed. “Inflation is much too high, and we realise the pain it is inflicting,” Powell said at his first in-person press appearance since the outbreak began. “We’re working quickly to get it back down.”
However, raising interest rates is only one weapon the Fed intends to use to reduce inflation. The Fed can also slow the economy by shrinking its $9 trillion balance sheet, which it aims to do in June.
This strategy is not without risks.
It takes more finesse than winning at the claw machine to bring inflation down without sparking a recession. And some leaders believe Powell has a tiny chance of succeeding.
A recession is 33 percent likely, according to JPMorgan CEO Jamie Dimon, and a “soft landing” (lower inflation, no recession) is also 33 percent likely.
Even current Treasury Secretary and former Fed Chair Janet Yellen said Powell would need to be “skillful and lucky” to land the plane without injuring anyone.
Powell claims that everyone underestimates his monetary policy abilities. “We have a fair chance to have a soft or softish landing,” he said, citing the solid job market and financially sound consumers and businesses. Exactly what you’d expect from a pilot.