Fed hikes began a year ago today, when the crisis du jour was Russia-fueled oil price spike
When the Fed began hiking rates a year ago today, the crisis du jour was Russia’s invasion of Ukraine 20 days earlier, pushing up oil prices.
It had also become clear that pandemic-related supply chain snags and heavy government stimulus made inflation sticky.
Headline CPI inflation was 8% and Core CPI (excluding food and energy prices) was at 6.4%. With both above the Fed’s 2% target, here’s what Powell said at his press conference that day:
We are attentive to the risks of potential further upward pressure on inflation and inflation expectations. The Committee is determined to take the measures necessary to restore price stability. The American economy is very strong and well positioned to handle tighter monetary policy.
Including the hike that day, they’ve raised overnight bank-to-bank lending rates 8 times since for a total of 4.5% in hikes.
CPI inflation dropped to 6% overall and 5.5% Core today.
And the economy did indeed handle it until last week, when the bank sector toppled.
One reason: Fed hikes made it so banks earn less on loan interest than they have to pay out on deposits.
Inflation fighting is a terrible job because everyone hates your decisions.
So all the pressure is on the Fed next Wednesday, March 22.
Will they hike to keep fighting inflation after the government and big banks have helped stabilize the bank sector?
Or will they pause because the bank sector needs a rest, and if it’s too strained, we tip into recession?
You can criticize all you want, but these are incredibly tough decisions.
We’ll keep you posted as it plays out. And below is Jeff Cox at CNBC with notes on this topic.
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– One year after the first rate hike, the Fed stands at policy crossroads