Still grappling with persistently high inflation, the Federal Reserve faces an entirely new — and in some ways conflicting — challenge as it meets to consider interest rates this week: How to restore calm to a nervous banking system.
“If you are obviously seen as adjusting your monetary policy because of concerns about financial strain, then you’re admitting you’re not doing ... crisis management,” Reinhart said.
Assuming that those programs work as intended, the Fed can focus on its ongoing campaign to cool inflation. Most recent economic reports point to a still-hot economy with. Most of that decline reflected a shift in consumer spending away from goods — such as used cars, furniture and appliances, which have been falling in price — and toward services, including traveling, dining out and entertainment events.
Hiring and inflation figures accelerated earlier this year after having shown signs of cooling in late 2022. In response, Powell and other Fed officials suggested that the central bank would likely raise rates higher than they had forecast in December and probably keep them at a peak for longer.When the Fed raises its key rate, it typically leads to higher rates on mortgages, auto loans, credit cards and many business loans. Typically, consumer and business spending slow in response.
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