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High interest rates, rising inflation: The economy still isn't normal
ECONOMY
High interest rates, rising inflation: The economy still isn’t normal
The improbable picture seems to guarantee that the Federal Reserve won’t be ready to lower interest rates in the next few months
By Rachel Siegel
April 11, 2024 at 6:00 a.m. EDT
A FedEx employee sorts out parcels on a Manhattan sidewalk on Wednesday. (Charly Triballeau/AFP/Getty Images)
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https://wapo.st/3xq0t80
The economy still isn’t behaving the way anyone expected.
The job market is growing at a blockbuster pace, even though high interest rates usually slow hiring or cause layoffs. Consumers are spending on essentials and extravagances alike, suggesting people don’t fear trouble ahead. The stock market is up, and worries of a recession have largely faded.
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But inflation, after easing remarkably in 2023, has stayed unexpectedly hot since the start of the year. And that’s confounding economists and Federal Reserve officials who are still struggling to understand the post-pandemic world.
Higher borrowing costs were widely expected to tackle inflation with full force, to bring the roaring economy crashing down — or both. Instead, things seem to be settling in a confusing spot, with price increases still above normal, but other parts of the economy holding strong, too. The result is more uncertainty for experts, consumers and businesses alike about what might happen next in an economy that is still resisting the usual rules.
“We got through some of that ‘transitory’ part,” said Diane Swonk, chief economist at KPMG, referring to more temporary sources of inflation that drove price increases in 2021 and 2022, such as supply chain problems and energy prices. “We haven’t gotten to the fundamental part — and the hard part.”
When the year started, it appeared the Fed and White House had pulled off the unthinkable: no recession, easing inflation and a still-booming job market. That momentum led Fed leaders in December to pencil in three interest rate cuts this year, projections they repeated last month.
But then January and February price data came in unexpectedly high. For a while, policymakers hoped those were bumps in the road, not a more worrisome trend. But March data, released this week by the Bureau of Labor Statistics, cemented any lingering doubts.
{snip}
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https://wapo.st/3xq0t80
By Rachel Siegel
Rachel Siegel is an economics reporter covering the Federal Reserve. She previously covered breaking news for the Post's financial section and local politics for the Post's Metro desk. Before joining the Post in June 2017, Rachel contributed to The Marshall Project and The Dallas Morning News. Twitter https://twitter.com/rachsieg
High interest rates, rising inflation: The economy still isn’t normal
The improbable picture seems to guarantee that the Federal Reserve won’t be ready to lower interest rates in the next few months
By Rachel Siegel
April 11, 2024 at 6:00 a.m. EDT
A FedEx employee sorts out parcels on a Manhattan sidewalk on Wednesday. (Charly Triballeau/AFP/Getty Images)
Share
https://wapo.st/3xq0t80
The economy still isn’t behaving the way anyone expected.
The job market is growing at a blockbuster pace, even though high interest rates usually slow hiring or cause layoffs. Consumers are spending on essentials and extravagances alike, suggesting people don’t fear trouble ahead. The stock market is up, and worries of a recession have largely faded.
Get a curated selection of 10 of our best stories in your inbox every weekend.
But inflation, after easing remarkably in 2023, has stayed unexpectedly hot since the start of the year. And that’s confounding economists and Federal Reserve officials who are still struggling to understand the post-pandemic world.
Higher borrowing costs were widely expected to tackle inflation with full force, to bring the roaring economy crashing down — or both. Instead, things seem to be settling in a confusing spot, with price increases still above normal, but other parts of the economy holding strong, too. The result is more uncertainty for experts, consumers and businesses alike about what might happen next in an economy that is still resisting the usual rules.
“We got through some of that ‘transitory’ part,” said Diane Swonk, chief economist at KPMG, referring to more temporary sources of inflation that drove price increases in 2021 and 2022, such as supply chain problems and energy prices. “We haven’t gotten to the fundamental part — and the hard part.”
When the year started, it appeared the Fed and White House had pulled off the unthinkable: no recession, easing inflation and a still-booming job market. That momentum led Fed leaders in December to pencil in three interest rate cuts this year, projections they repeated last month.
But then January and February price data came in unexpectedly high. For a while, policymakers hoped those were bumps in the road, not a more worrisome trend. But March data, released this week by the Bureau of Labor Statistics, cemented any lingering doubts.
{snip}
Share
https://wapo.st/3xq0t80
By Rachel Siegel
Rachel Siegel is an economics reporter covering the Federal Reserve. She previously covered breaking news for the Post's financial section and local politics for the Post's Metro desk. Before joining the Post in June 2017, Rachel contributed to The Marshall Project and The Dallas Morning News. Twitter https://twitter.com/rachsieg
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