Even as the economy is squeezed by rising interest rates, mounting evidence suggests inflation is easing just as the Federal Reserve ratchets up the pressure.
Even as the U.S. economy gets squeezed by rising interest rates and the threat of recession, mounting evidence suggests inflation is easing just as the Federal Reserve ratchets up the pressure.
What’s more, the increase in the cost of many goods that drove the spike in inflation last year, such as used cars, has decelerated, in some cases quite rapidly. “It will take substantially more evidence to give confidence that inflation is on a sustained downward path,” Fed Chair Jerome Powell said last week after the bank raised interest rates for the eighth time this year. Other top Fed officials backed him up.
The Fed’s tough talk sent stocks plunging and intensified worries that its actions are likely to capsize the economy in 2023. Higher borrowing costs depress the economy by reducing consumer spending and business investment. What particularly worries the Fed is the fastest increase in wages in four decades, a result of perhaps the tightest labor market on record. Compensation is rising more than 5% a year, double the annual amount in the decade before the pandemic.
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