President Jerome Powell told Congress on Tuesday that the Federal Reserve was prepared to accelerate interest rate hikes it planned to begin this year if it deemed it necessary to curb high inflation. Fed officials have estimated they will raise their short-term benchmark rate, now close to zero, three times this year. Many economists envision up to four Fed rate hikes in 2022.
These rate hikes would likely increase borrowing costs for home and auto purchases as well as business loans, potentially slowing the economy. The rate hikes also mark a sharp turnaround in policy on the part of Fed policymakers, who, as recently as September, were divided over whether to raise rates even once that time. year. The Fed is also quickly ending its monthly bond purchases, which were aimed at lowering long-term interest rates to encourage borrowing and spending.
Yet the Fed’s swift pivot has failed to appease questions from many former Fed officials, economists, and some senators about whether the Fed has acted too slowly to end its ultra-interest rate policies. low in the face of accelerating inflation – and put the economy at risk as a result.
In his testimony to Congress on Tuesday, Powell said the Fed mistakenly believed the supply chain bottlenecks that helped drive up commodity prices would not last as long as they did. . Once supply chains were unlocked, he said, prices would come down again.
Yet for now, supply issues have persisted, and while there are signs they are easing in some industries, Powell acknowledged that progress has been limited. He noted that many cargo ships remain moored outside the Port of Los Angeles and Long Beach, the largest in the country, awaiting unloading.
With the Biden administration facing public discontent with rising inflation, President Joe Biden said his administration’s investments in ports, roads, bridges and other infrastructure would help dampen inflation by loosening some booming supply chains.
In the meantime, many restaurants have passed on some of their higher labor and food costs to their customers in the form of higher prices. So far, many consumers seem willing to pay more. Gene Lee, CEO of Darden Restaurants, owner of Olive Garden and other brands, recently told investors it was “the toughest inflationary environment we’ve seen in years.”
The company said its food and beverage costs jumped 9% in the quarter and hourly labor costs rose nearly 9% as it increased wages to attract workers. Darden said it increased its prices, in turn, by 2% in the quarter and expects to increase them by 4% in the next two quarters to help compensate. Rick Cardenas, the company’s president and chief operating officer, said those higher prices have yet to reduce consumer demand.