The Fed’s Difficult Choice

After raising interest rates again yesterday, the Federal Reserve now faces a tough decision.

Some economists believe that the Fed has raised its benchmark rate — and, by extension, the cost of many loans across the U.S. economy — enough to have solved the severe inflation of the past couple years. Any further increases in that benchmark rate, which is now at its highest level in 22 years, would heighten the risk of a recession, according to these economists. In the parlance of economics, they are known as doves.

But other experts — the hawks — point out that annual inflation remains at 3 percent, above the level the Fed prefers. Unless Fed officials add at least one more interest rate increase in coming months, consumers and business may become accustomed to high inflation, making it all the harder to eliminate.

For now, Jerome Powell, the Fed chair, and his colleagues are choosing not to take a side. They will watch the economic data and make a decision at their next meeting, on Sept. 20. “We’ve come a long way,” Powell said during a news conference yesterday, after the announcement that the benchmark rate would rise another quarter of a percentage point, to as much as 5.5 percent. “We can afford to be a little patient.”

The charts below, by our colleague Ashley Wu, capture the recent trends. Inflation is both way down and still somewhat elevated, while economic growth has slowed but remains above zero.

Today’s newsletter walks through the dove-vs.-hawk debate as a way of helping you understand the current condition of the U.S. economy.

The doves’ case

The doves emphasize both the steep recent decline in inflation and the forces that may cause it to continue falling. Supply chain snarls have eased, and the strong labor market, which helped drive up prices, seems to be cooling. “A happy outcome that not long ago seemed like wishful thinking now looks more likely than not,” the economist Paul Krugman wrote in Times Opinion this month.

Economists refer to this happy outcome — reduced inflation without a recession — as a soft landing. The doves worry that a September rate hike could imperil that soft landing. (Already, corporate defaults have risen.)

“It’s crystal clear that low inflation and low unemployment are compatible,” Rakeen Mabud, an economist at the Groundwork Collaborative, a progressive think tank, told our colleague Talmon Joseph Smith. “It’s time for the Fed to stop raising rates.”

A recession would be particularly damaging to vulnerable Americans, including low-income and disabled people. The tight labor market has drawn more of them into work and helped them earn raises.

The hawks’ case

The hawks see the risks differently. They point to some signs that the official inflation rate of 3 percent is artificially low. Annual core inflation — a measure that omits food and fuel costs, which are both volatile — remains closer to 5 percent.

“The Fed should not stop raising rates until there is clear evidence that core inflation is on a path to its 2 percent target,” Michael Strain of the American Enterprise Institute writes. “That evidence does not exist today, and it probably will not exist by the time the Fed meets in September.” (Adding to the hawks’ case is the fact that big consumer companies like Unilever keep raising their prices, J. Edward Moreno of The Times explains.)

Fed officials themselves have argued that it’s important to tame inflation quickly to keep Americans from becoming used to rising prices — and demanding larger raises to keep up with prices, which could in turn become another force causing prices to rise.

At root, the hawk case revolves around the notion that reversing high inflation is extremely difficult. When in doubt, hawks say, the Fed should err on the side of vigilance, to keep the U.S. from falling into an extended and damaging period of inflation as it did in the 1970s.

And where do Fed officials come down? They have the advantage of not needing to pick a side, at least not yet. Between now and September, two more months of data will be available on prices, employment and more. Powell yesterday called a September rate increase “certainly possible,” but added, “I would also say it’s possible that we would choose to hold steady.”

As our colleague Jeanna Smialek, who covers the Fed, says, “They have every incentive to give themselves wiggle room.”

More on the Fed

The Fed’s economists are no longer forecasting a recession this year.

Powell noted that the labor force has been growing. “That’s good news for the Fed, because it helps ease the labor shortage without driving up unemployment,” Ben Casselman wrote.

Responding to a question from Jeanna, Powell said it was good that consumer demand for the “Barbie” movie was so high — but that persistently high spending could be a reason for a future rate increase.

Stock indexes rose after the Fed announced the increase, but fell after Powell delivered his economic outlook.


War in Ukraine

Ukraine appears to be intensifying its counteroffensive. Reinforcements are pouring into the fight, many trained and equipped by the West.

The attack looks to be focused in the southern region of Zaporizhzhia, with the aim of severing Russian-occupied territories in Ukraine.

U.S. officials said the assault was timed to take advantage of turmoil in the Russian military.


A judge halted Hunter Biden’s plea deal on tax charges after the two sides disagreed over how much immunity it granted him.

In her first Supreme Court term, Ketanji Brown Jackson secured a book deal worth about $3 million, the latest justice to parlay fame into a big book contract.

Mitch McConnell, the 81-year-old Senate Republican leader, abruptly stopped speaking during a Capitol news conference and was escorted away. He spoke in public again later.

A former intelligence officer told Congress that the U.S. government had retrieved materials from U.F.O.s. The Pentagon denied his claim.

Rudy Giuliani admitted to lying about two Georgia election workers he accused of mishandling ballots in 2020.

Representative George Santos used his candidacy and ties to Republican donors to seek moneymaking opportunities.

Other Big Stories

Sinead O’Connor, the Irish singer who had a No. 1 hit with “Nothing Compares 2 U,” died at 56. She drew a firestorm when she ripped up a photo of the pope on live TV.

The heat wave that has scorched the southern U.S. is bringing 100-degree heat to the Midwest. The East Coast is probably next.

Israel’s Supreme Court agreed to hear petitions challenging the new law limiting its power.

Soldiers in Niger ousted the president and announced a coup.

Gap hired Richard Dickson, the Mattel president who helped revitalize Barbie, as its chief executive.

The messaging platform Slack was having an outage this morning.


Congress should create an agency to curtail Big Tech, Senators Lindsey Graham, a Republican, and Elizabeth Warren, a Democrat, argue.

Thousands of Americans drown every year. More public pools would help, Mara Gay writes.

Here are columns by Nicholas Kristof on affirmative action and Pamela Paul on the so-called Citi Bike Karen.


Eternally cool: Fans keep you dry on a hot day. They let you channel Beyoncé. They say, “I love you.” Can an air-conditioner do that?

The yips: A star pitcher lost her ability to throw to first base. Now, she helps young athletes with the same problem.

Spillover: Could the next pandemic start at the county fair?

Lives Lived: Bo Goldman was one of Hollywood’s most admired screenwriters, winning Oscars for “One Flew Over the Cuckoo’s Nest” and “Melvin and Howard.” He died at 90.


A second-half goal from the co-captain Lindsey Horan gave the U.S. a 1-1 tie against the Netherlands, in an evenly matched game.

Spain’s star midfielder Alexia Putellas returned to the starting lineup for the first time in more than a year after a knee injury.


Off the market: The Angels are reportedly withdrawing the superstar Shohei Ohtani from trade talks.

Honeymoon phase: Aaron Rodgers agreed to a reworked contract with the Jets, which saves the team money and likely ensures he plays multiple seasons in New York.


A growing dialect: What is Miami English? The linguist Phillip Carter calls it “probably the most important bilingual situation in the Americas today,” but it’s not Spanglish, in which a sentence bounces between English and Spanish. Instead, Miamians — even those who are not bilingual — have adopted literal translations of Spanish phrases in their English speech. Some examples: “get down from the car” (from “bajarse del carro”) instead of “get out of the car,” and “make the line” (from “hacer la fila”) instead of “join the line.”

More on culture

Kevin Spacey was found not guilty in Britain of sexual assault.

The Japanese pop star Shinjiro Atae came out as gay, a rare announcement in a country where same-sex marriage isn’t legal.


Brighten up grilled chicken with Tajín, the Mexican seasoning made with red chiles and lime.

Preserve vintage clothes in wearable condition.

Calculate your life expectancy to guide health care choices.

Consider a body pillow.

Reduce exposure to forever chemicals in tap water.


Here is today’s Spelling Bee. Yesterday’s pangram was thrilling.

And here are today’s Mini Crossword, Wordle and Sudoku.

Thanks for spending part of your morning with The Times. See you tomorrow.

P.S. David is on “The Daily” to talk about how the wealthy get an advantage in college admissions.

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David Leonhardt writes The Morning, The Times’s flagship daily newsletter. He has previously been an Op-Ed columnist, Washington bureau chief, co-host of “The Argument” podcast, founding editor of The Upshot section and a staff writer for The Times Magazine. In 2011, he received the Pulitzer Prize for commentary. More about David Leonhardt

Ian Prasad Philbrick is a writer for The Morning newsletter. More about Ian Prasad Philbrick

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