Powell’s inflation plan: The Fed’s “easy money” party is ending earlier than expected

Thursday, December 16, 2021 by Snacks

Christmas card from Jerome… minus the XOXO. During the Fed’s final meeting of 2021, chief Jerome Powell said the US’s central bank plans to slash its economy-boosting bond purchases twice as fast as previously planned. That puts the Fed on track to end bond splurges in March, not June — meaning interest rates could rise as early as spring. In March, the Fed wasn’t expected to hike rates until 2024. Now it expects to hike them three times next year.

  • The reason: Powell called inflation transitory until this month, when he officially “retired” the term. Prices are soaring faster than expected, with inflation at a 39-year high.
  • The solution: Higher interest rates make borrowing more expensive. Extra IOU payments discourage spending and encourage saving, which can help lower prices.
  • The reaction: Stocks jumped yesterday after Powell announced his #FlationControl plan, which reduced uncertainty for investors and relaxed price fears.

Take a (interest rate) hike… or three. This year was all about boosting spending to support the economy. But because Powell says high prices may persist “well into next year,” 2022 could be all about cooling the overheated economy. Unemployment has fallen to 4.2%, and the average American’s bank account is about 50% higher than pre-pandemic.


The easy-money party is over… and rate hikes may be the cure for an overspending hangover. The Fed’s easy-money policies helped the economy rebound by encouraging bank loans and consumer spending. But as prices soar, those policies could make it harder for people to pay for essentials like food, housing, and heat — and that might end up seriously hurting the economy. US retail sales majorly slowed in November from October, signaling that rising prices are starting to mess with spending.

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