June 21, 2024
Fed Chair Jerome Powell said that the central bank would stamp out rapid inflation “until the job is done.”

Phillip Molnar | The San Diego Union-Tribune (TNS)

Federal Reserve Chair Jerome Powell said in a speech recently that the central bank would stamp out rapid inflation “until the job is done” despite a dropping inflation rate.

While inflation has been lowering, he said officials want to see more progress to convince them that they are truly bringing price increases under control.

“We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.

Critics have argued raising interest rates tamper economic growth and the Fed’s strategy so far isn’t working.

Q: Is the Federal Reserve correct in considering additional rate hikes?

Jamie Moraga, Franklin Revere

YES: Additional rate hikes could be warranted if they reduce higher prices for goods and services and get inflation back to the 2 percent goal. The Fed should be careful how much they raise rates to avoid over-tightening and worsening our economic situation. They should also ensure high-interest rates aren’t prolonged, which can affect mortgages, credit cards, and loans (including personal, student, auto, and business), resulting in long-term economic impacts.

David Ely, San Diego State University

YES: While inflation has declined over the past year, common measures of headline and core inflation are still above the Fed’s target of 2 percent. Labor markets are still relatively strong and the likelihood of a recession has diminished, factors that could maintain upward pressure on prices. It is best that the Fed not take another rate hike off the table. This stance signals the Fed’s strong commitment to bringing inflation back to its target.

Ray Major, SANDAG

YES: Increasing rates is one of the few tools the Federal Reserve can use to control inflation. Maintaining a target of 2 percent or lower is crucial for people to build and maintain wealth. The Federal Reserve should take action and do what it can to reach that goal. Additionally, curtailing some of the $5 trillion annual spending would help the nation reach the target even faster and without requiring additional increases in interest rates.

Caroline Freund, University of California-San Diego School of Global Policy and Strategy

YES: A key principle of good monetary policy is to have a tightening bias when the economy is running hot. Although there are some signs of cooling, the economy remains pretty hot, with unemployment at 3.5 percent and a consumer spending spree that continues to surprise on the upside. The Fed wants to avoid moving too far, too fast, pushing the U.S. into recession. But taking hikes off the table now would be unnecessarily restrictive. Watching the incoming data, acting if warranted, and retraining credibility is the right approach.

Kelly Cunningham, San Diego Institute for Economic Research

YES: The Fed should continue raising interest rates because inflation is still here, the U.S. credit rating was recently downgraded (only the second time in history), and status as the global reserve currency remains seriously threatened. Henry Hazlitt once said, “Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit.” The resulting inflationary boom results in readily apparent in bad investments. Necessary corrections and adjustments must occur for healthy economic activity to fully return.

Phil Blair, Manpower

YES: Unfortunately. Price stability is needed to sustain strong labor market conditions forward. The Fed is trying to walk a line between doing too much and too little. Doing too little could allow high inflation to become entrenched and ultimately require a strong monetary policy to fight persistent inflation at a painful cost to employment.

Gary London, London Moeder Advisors

NO: I think it is time to pause interest rate increases. Hiring is down, economic growth is down and inflation, while not down to the targeted (and perhaps unnecessary) 2 percent, is dramatically down. The economy has cooled to more desired levels, muting for the moment concerns about inflation. We are not in recession. Gas and grocery prices seem to be the most inflated, however, and that remains the focus of consumer dissatisfaction.

Alan Gin, University of San Diego

NO: One of the biggest contributors to inflation is the category “Rent of Shelter,” which is up 7.8 percent year-over-year. Given its weight in the Consumer Price Index, that category is responsible for 2.7 percent of the current level of inflation. Remove that and the inflation rate is within the Fed’s target. Some economists argue that higher interest rates contribute to rental inflation by forcing potential buyers to rent instead of buying housing. Landlords may also raise rents to cover higher financing costs.

Bob Rauch, R.A. Rauch & Associates

NO: The Fed should hold rates at current levels as inflation has retreated from a 40-year high last summer. Raising rates further will put us in danger of a recession as past increases will continue to weaken the economy. It will become more expensive and harder for companies and individuals to borrow. The most prudent thing to do is wait and see what impact all the record increases to date have had.

James Hamilton, University of California-San Diego

YES: But I hope they don’t have to follow through. Changes in monetary policy take some time to affect the economy. Inflation has been coming down as a result of the steps the Fed started taking last year. If inflation continues to fall, no further rate hikes will be needed. But if we do not continue to make additional progress with inflation, later this year the Fed will need to consider another hike.

Austin Neudecker, Weave Growth

NO: The impact of their past rate increases has not yet been fully realized. I think signaling that the Fed is willing to do more rate increases is prudent in terms of controlling sentiment. However, I hope that they only execute on the threat if the economy shows sustained or increasing inflation. I would rather have a few percent of additional inflation for a couple of months than create a recession, job losses.

Chris Van Gorder, Scripps Health

YES: There are parallels between today’s environment and the late 1970s when we had to decide whether to keep fighting inflation with higher rates or to relent. Back then, the Fed dropped short-term rates based in part on promising initial data. Within a year, inflation went up, approaching nearly 15 percent annually; the Fed had to raise rates even higher. Powell’s focus on ensuring there isn’t a “second wind” in inflation is unfortunately backed by historical precedence.

Norm Miller, University of San Diego

NO: The Federal Reserve is too anchored to an arbitrary 2 percent target as if it were some magical fulcrum of a balancing act. Inflation is coming down and Powell admitted that real estate has a lagged impact on the CPI that will certainly bring the measurement down, closer to the target, in the months ahead. While the economy is doing well this year, based on statistics to date, job openings are rapidly declining and we should be fearful of over-tightening.

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