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/ Wednesday, June 22, 2022
In fact, The Fed’s huge rate hike and Powell’s comments renewed concerns among economists about where he has taken the Fed. Federal Reserve Chairman Jerome Powell.>AP
Fed’s Powell facing rising criticism for inflation missteps
Powell seen by Fed watchers as much less sure-footed
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Christopher Rugaber – The Associated Press
ASHINGTON — Federal Reserve Chair Jerome Powell won praise for his deft leadership during the maelstrom of the pandemic recession. As threats to the U.S. economy have mounted, though, Powell has increasingly struck Fed watchers as much less surefooted. Inflation has proved higher and far more persistent than he or the Fed’s staff economists had foreseen. And at a policy meeting last week, Powell announced an unusual last-minute switch to a bigger interest rate hike than he had previously signaled — and then followed with a news conference that many economists described as muddled and inconsistent. It’s been a sharp turnaround for Powell, who is widely credited with preventing what could have been a far worse economic crisis during the pandemic and who last month won an easy bipartisan Senate confirmation for a second fouryear term. Now, as he confronts chronically high inflation, plunging financial markets and the growing threat of a recession, Powell is facing questions — and criticism — surrounding his stewardship of the Fed at a time when its challenges are multiplying. Thanks to a once-in-a-century pandemic, the first major European war in decades, and soaring gas and food prices that the Fed has limited power to affect, Powell could become the first Fed chair since Paul Volcker in the early 1980s to grapple
with “stagflation,” a miserable combination of slow critically important communications with markets economic growth and high inflation. and the public. Struggling to curb the worst inflation outbreak As those criticisms echo, Powell will visit Capitol in four decades, Powell last week engineered a Hill this week to give his semi-annual testimony three-quarters-of-a-point increase in the Fed’s to House and Senate committees, where he could short-term interest rate — the largest single rate face tougher questions than at any other point hike in a quarter-century. It was an unexpectedly in his tenure as Fed chair. He will testify one year aggressive move after Powell had made clear a after he stressed his confidence to Congress that month earlier that a more modest half-point rate inflation was temporary and would likely “wane.” hike was coming. It has not. In May, the government reported, At his news conference, Powell defended consumer prices accelerated 8.6% from a year the Fed’s decision earlier. At his news by noting that the conference last week, most recent inflation Powell said the Fed readings had been had been surprised even more worrisome by the latest figures, than expected. The which have been Fed’s hike will make fueled by Russia’s it more expensive for invasion of Ukraine, many consumers and still-clogged global businesses to borrow. supply chains, labor Mark Zandi, chief economist Yet Powell’s shortages and surging at Moody’s Analytics explanation was demand for services faulted by many Fed from rents to airline watchers, with some tickets to restaurant complaining that he meals. had failed to articulate a coherent and consistent “We’re not seeing progress and we want to see policy. progress and that’s really another part of why we “The Fed was ad-libbing, scrambling to catch up did what we did today,” Powell said Wednesday. to the painfully higher inflation,” said Mark Zandi, The Fed’s huge rate hike and Powell’s comments chief economist at Moody’s Analytics. “The Fed renewed concerns among economists about where doesn’t have a script and is kind of making it up as he has taken the Fed. Most analysts have sharply it goes here.” criticized the Powell Fed for waiting too long to William Dudley, who, as the former head of the tighten credit when inflation took off last year and Federal Reserve Bank of New York, served with warn that it’s now having to raise rates so fast as to Powell on the Fed’s Board of Governors, said on risk tipping the economy into recession. a think tank webcast last week that the central “Our worst fears around the Fed have been bank’s leader was putting its credibility at risk. confirmed,” Ethan Harris, global head of economics “When the Fed changes their mind at the last at Bank of America, said in a client note last week. minute like this,” Dudley said, “it does have the “They fell way behind the curve and are now potential to undermine the credibility” of its playing a dangerous game of catch up.”
The Fed doesn’t have a script and is kind of making it up as it goes here.
