29 June 2023
Federal Reserve Chairman Jerome Powell and his colleagues’ admission of their lack of understanding in the battle against inflation sent unsettling messages, even though stock markets remained relatively unchanged. The unexpected resilience of economies and low unemployment rates have left policymakers puzzled, as the economy has not experienced a downturn despite significant rate hikes. The dependence on data reflects a lack of confidence in their own forecasts, seeking further guidance from real-world observations. While inflation has slowed due to declining energy prices and resolving supply-chain issues, it remains persistently high due to companies raising prices and workers demanding higher wages. Despite significant rate hikes, the impact on the real economy and consumer prices has been minimal. Powell’s rare acknowledgment that inflation won’t reach the 2% target until 2025 solidifies the notion that interest rates will remain elevated for an extended period, further heightening concerns.