Good morning. The Federal Reserve is trying to tame inflation without wrecking the economy. |
 | | Jerome H. Powell, chairman of the Fed, which is trying to keep unemployment low and prices relatively stable.Julia Nikhinson for The New York Times |
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America's central bank, the Federal Reserve, is trying to strike a delicate balance: It has to take steps to slow down the economy to bring inflation under control — but it wants to do so without causing a severe recession. |
The predicament is unusual for a government agency. Typically, public officials talk about stimulating the economy and creating more jobs. |
The Fed is trying to do the opposite. Under its dual mandate from Congress, the Fed tries to keep unemployment low and prices relatively stable. Yet those two goals are sometimes in conflict: A strong economy can lead to more jobs but quickly rising prices, while a sluggish economy can lead to fewer jobs but slower price increases. The Fed aims to balance those extremes. |
But as the Fed has moved to slow down the economy, some experts have worried that it's going too far, risking unnecessary economic pain. The Fed's defenders, meanwhile, say the central bank is acting wisely — and may even need to go further than it has to tame rising prices. |
Today's newsletter will explain both sides of the debate and the potential dangers to the economy if the Fed does too much or too little to bring down inflation. |
Experts arguing for caution worry that the Fed has already done enough to ease inflation, even if the effects are not clear yet, and that any more action could backfire. |
The Fed's attempts to cool the labor market illustrate the potential risk. |
The jobs market is one of the major drivers of inflation today, said Jason Furman, an economist at Harvard University. Many employers have raised wages to compete for hires; there are more job vacancies than there are available workers. But someone has to pay for the higher wages, and employers have passed those costs on to consumers by charging higher prices, fueling inflation. |
In response, the Fed has raised interest rates five times this year to increase the cost of borrowing money. The goal: More expensive loans will result in less investment, then less business expansion, then fewer jobs, then lower pay, then less inflation. |
There are hints that the Fed's moves are working. For example, stock markets have declined as the Fed has raised interest rates — partly a signal that investors expect the economy to cool off, just as the Fed wants. "Markets going down is not an indictment of the Fed's policy," my colleague Jeanna Smialek, who covers the economy, told me. "Markets going down is the Fed's policy." |
But the rest of the intended chain of reaction, from less investment to less inflation, will take time to work through the economy. The Fed's interest rate hikes may have done enough, but the full effects aren't visible yet. |
Some experts worry the Fed will not wait long enough to see the full effects of its previous actions before it takes more aggressive steps. That could lead to more harm to the economy than necessary. "The risk that the Fed is moving too slowly to contain inflation has declined, while the risk that high interest rates will cause severe economic damage has gone up — a lot," Paul Krugman, the economist and Times columnist, wrote last week. |
On the other side, there's the risk of the Fed doing too little. |
We have seen the consequences. The Fed, believing inflation would be temporary, was slow to raise interest rates last year. That probably exacerbated the rising prices we're dealing with now. |
But things could get worse. The longer inflation goes on, the likelier it is to become entrenched. For example, if businesses expect costs to keep rising, they will set prices higher in anticipation — leading to a vicious cycle of increasing costs and prices. |
Longer bouts of inflation are also more likely to result in stagflation, when inflation is high and economic growth slows. In such a situation, people have a harder time finding a job and the pay they can get quickly loses value. The U.S. endured stagflation in the 1970s; Europe is facing it now as prices rise and the continent's economy stumbles. |
Entrenchment and stagflation could force the Fed to act even more drastically, with grave side effects. It has happened before: In the 1970s and '80s, the Fed raised interest rates so dramatically and so quickly that the unemployment rate spiked to more than 10 percent. |
By acting aggressively now, the Fed hopes to avoid such harsh measures — and produce a "soft landing" that reduces inflation without wrecking the economy. |
The central bank's record suggests it could pull off the feat, Alan Blinder, a former Fed vice chairman, argued in The Wall Street Journal: The Fed achieved a soft landing or came close in six of 11 attempts over the past six decades. "Landing the economy softly is a tall order, but success is not unthinkable," Blinder wrote. |
 | | Source: Institute for the Study of War | By Marco Hernandez and Josh Holder |
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- Ukrainian troops expelled Russian forces from a key town in Kherson Province, pushing farther into Russian-controlled territory by attacking several places at once.
- Russian forces are outnumbered in Kherson, according to pro-Kremlin bloggers.
- Russians are fleeing to countries like Kyrgyzstan to avoid the military draft.
- President Biden spoke with Volodymyr Zelensky, Ukraine's president, and pledged to send four more of the mobile rocket launchers known as HIMARS.
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 | | Mumbai and the monsoon.Saumya Khandelwal for The New York Times |
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 | | Indigenous Alaskans' freezers hold a winter's worth of food.Katie Basile for The New York Times |
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Lives Lived: Loretta Lynn built her stardom not only on her Grammy-winning country music but also on her image as a symbol of rural pride. She died at 90. |
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N.W.S.L. fallout continues: Players are "horrified and heartbroken" after the release of the Sally Yates report, according to the U.S. women's national team and Portland Thorns star Becky Sauerbrunn, who called for the removal of top executives involved in the ongoing women's soccer crisis. |
2023 N.B.A. champs? A survey of the league's general managers revealed the Milwaukee Bucks as favorites, but familiar contenders also got some votes in what may be an open field for the 2023 title. M.V.P. favorite: Mavericks superstar Luka Doncic. |
 | | Jimmy Smits on the set of "East New York."George Etheredge for The New York Times |
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After the police killing of George Floyd in 2020, public confidence in policing reached a record low. Police officers' roles on television changed, too: Some shows like the ride-along reality program "Cops," criticized as "copaganda," were taken off the air or rewritten. |
Two years later, the police drama has survived. Eighteen crime-related programs are slated for prime-time slots in the coming months. But there are signs that the genre has evolved in response to public opinion, delivering more nuanced portrayals of law enforcement. |
 | | Craig Lee for The New York Times |
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The pangram from yesterday's Spelling Bee was mooching. Here is today's puzzle. |
Thanks for spending part of your morning with The Times. See you tomorrow. — German |
"The Daily" is about the floods in Pakistan. On "The Argument," Andrew Yang and David Jolly make the case for a third political party. |
Matthew Cullen, Natasha Frost, Lauren Hard, Lauren Jackson, Claire Moses, Ian Prasad Philbrick and Ashley Wu contributed to The Morning. You can reach the team at themorning@nytimes.com. |
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