Federal Reserve Chairman Jerome H. Powell likens setting monetary policy to stumbling in a dimly lit room: you carefully feel the way to the door to avoid making a painful mistake.
This analogy is especially true after the Omicron-jumbled job report for January because the virus obscures the pace of progress in the job market and obscures policymakers. But the central bank may not have the luxury of creeping in at this point.
Mr. Powell and his colleagues They are ready to raise interest rates for the first time in March 2018, A move to cool the economy as inflation has been running at a pace not seen for nearly 40 years. At a time when recent job market data are sluggish and gloomy at worst, it may be uncomfortable to make that move – and as markets point to 2022 five-point increases, it could indicate what is coming next.
As officials try to assess the true strength of the economic recovery, the Fed may have surpassed the virus-suppressed labor market data for months. Hiring after one year of labor market improvement.
But the virus outbreak and its economic consequences underscore the challenge facing the central bank throughout 2022 as it withdraws its support. It is difficult to know what will happen next in the business environment affected by the corona virus.
“We will be humble and active,” he said. Powell Speaking at a press conference, he pledged the policy path of the central bank Last month.
The central bank is generally guided by looking at incoming labor market data – especially the unemployment rate, recently – and inflation data.
But it may take months for the picture of jobs to clear up, meanwhile, as inflation heats up. Used vehicle prices, Which were a major impetus for overall price rises, may be at a stabilizing peak but have not yet cooled significantly. Petrol is expensive Went upstairs again, Food prices are high and rents are rising sharply.
It is likely to leave the central bank, which usually takes its help in moments of strong labor market improvement, moving when the job market hits a bump.
“It’s Omigron fog,” said Diane Swong, chief economist at Grant Thornton’s accounting firm. “It’s not going to give us visibility.”
Central bank officials are trying to ensure that high inflation does not fall behind the curve, allowing it to become a permanent feature of the economic landscape and locked into consumer and business expectations.
How the central bank strikes the balance – and how much it slows the economy with its rate hike this year – could have significant political implications. Voters are already sluggish about the prospects for the economy, and President Biden has suffered in the referendum.
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