“The Fed has penciled in three rate hikes this year, and the first could come as soon as March.”
“Adam Ozimek, chief economist at freelancing platform Upwork, said the Fed misjudged how large the inflation spike would be, though he still thinks — as the Fed previously argued — that price increases will eventually start to cool on their own. He said the danger instead is that the Fed will overreact to levels of inflation that ultimately prove temporary, hurting the millions who still haven’t returned to the labor force.
“Inflation is by any measure extremely high, yet labor slack remains significant as well and we are far from full employment,” he said. “The policy challenge is far more complicated than in 2018, when Powell faced uncertainty about labor slack but without the added pressure of high inflation.”
Still, others have praised the Fed’s restraint amid the price spikes, keeping rates low and allowing the job market to heal more quickly. They argue that inflation is significantly being fed by supply chain issues that the central bank isn’t equipped to solve.
Former Fed Chair William McChesney Martin once said the central bank’s job was “to take away the punch bowl just as the party gets going.” But Sahm argued that a few rate increases don’t have to ruin anything.
“Things are getting better,” she said. “We need to pour a little less punch in the punch bowl.””