Even if a downturn can be avoided, it’s almost inevitable, analysts say, that the Fed will have to inflict some pain - most likely in the form of higher unemployment.
For months, Chair Jerome Powell has held out hope that the Federal Reserve will be able to raise interest rates high enough to throttle rampant inflation without tipping the economy into recession.
Even if an economic downturn can be avoided, it’s almost inevitable, analysts say, that the Fed will have to inflict some pain - most likely in the form of higher unemployment - as the price of defeating stubbornly high inflation. The officials have left some ambiguity about what they might do after that, at their meeting in September. Some analysts had thought the policymakers might then even pause their rate hikes altogether after comments by Raphael Bostic, president of the Federal Reserve Bank of Atlanta, had seemed to suggest as much.
Another concern for the Fed emerged Friday, when the University of Michigan’s monthly survey of consumer sentiment showed that Americans’ expectations for future inflation are rising. That is an ominous sign, because expectations can become self-fulfilling: If people expect higher inflation in the future, they often change their behaviour in ways that increase prices.
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