WASHINGTON (AP) — When Jerome Powell delivered a high-profile speech last month, the Federal Reserve chair came the closest he ever had to declaring that the inflation surge that gripped the nation for three painful years was now essentially defeated.
And not only that. The Fed’s high interest rates, Powell said, had managed to achieve that goal without causing a widely predicted recession and high unemployment.
Yet most Americans are not in the same celebratory mood about the plummeting of inflation in the face of the high borrowing rates the Fed engineered. Though consumer sentiment is slowly rising, a majority of Americans in some surveys still complain about elevated prices, given that the costs of such necessities as food, gas and housing remain far above where they were before the pandemic erupted in 2020.
The relatively sour mood of the public is creating challenges for Vice President Kamala Harris as she seeks to succeed President Joe Biden. Despite the fall of inflation and strong job growth, many voters say they’re dissatisfied with the Biden-Harris administration’s economic record — and especially frustrated by high prices.
That disparity points to a striking gap between how economists and policymakers assess the past several years of the economy and how many ordinary Americans do.
In his remarks last month, given at an annual economic symposium in Jackson Hole, Wyoming, Powell underscored how the Fed’s sharp rate hikes succeeded much more than most economists had predicted in taming inflation without hammering the economy — a notoriously difficult feat known as a “soft landing.”
“The 4½ percentage point decline in inflation from its peak two years ago has occurred in a context of low unemployment — a welcome and historically unusual result,” Powell said.
With high inflation now essentially conquered, Powell and other central bank officials are preparing to cut their key interest rate in mid-September for the first time in more than four years. The Fed is becoming more focused on sustaining the job market with the help of lower interest rates than on continuing to fight inflation. 2023 was a historic year for inflation falling. And there wasn’t a recession, and that’s unprecedented. And so we will be studying the mechanics of how that happened for a long time.Austan Goolsbee, president of the Chicago Fed
Many consumers, by contrast, are still preoccupied most by today’s price levels.
“It really has been a remarkable success, how inflation went up, has come back, and is around the target,” said Kristin Forbes, an economist at MIT.
“But from the viewpoint of households, it has not been so successful,” she added. “Many have taken a big hit to their wages. Many of them feel like the basket of goods they buy is now much more expensive.”
Two years ago, economists feared the Fed’s ongoing rate hikes — it ultimately raised its benchmark rate more than 5 percentage points to a 23-year high in the fastest pace in four decades — would hammer the economy and cause millions of job losses. After all, that’s what happened when the Fed under Chair Paul Volcker sent its benchmark rate to nearly 20% in the early 1980s, ultimately throttling a brutal inflationary spell.
In fact, at Jackson Hole two years ago, Powell himself warned that using high interest rates to defeat the inflation spike “would bring some pain.”
Yet now, according to the Fed’s preferred measure, inflation is 2.5%, not far above its 2% target. And while a weaker pace of hiring has caused some concerns, the unemployment rate is at a still-low 4.3%, and the economy expanded at a solid 3% annual rate last quarter.
