The Federal Reserve Confronts an Almost Impossible Task
Only perfection will prevent the central bank's credibility from eroding even further.
Federal Reserve Chair Jerome Powell faces a tough task ahead.
Photographer: Kevin Dietsch/Pool/AFP via Getty Images
The Federal Reserve is planning to tighten credit even as forecasts call for U.S. economic growth to slow and the recent high inflation rates to recede. With just the smallest of missteps, the central bank risks either overkill, or a further loss in credibility.
The incoming economic data has been falling below estimates at a degree not seen since the early days of the pandemic, based on Citigroup Inc.’s Economic Surprise Index. Consumers show few signs of spending their pandemic-related stimulus payments, having saved 71% of their June 2020 checks, even more -- 74% -- of December’s payment and still more, 75%, of the money received in March, according to Federal Reserve Bank of New York surveys. Also, the Fed’s attempts to spur borrowing and spending have been fruitless. Since the fourth quarter of 2019, it has pumped up the money supply as measured by M2 by 34%, but that money lies fallow with the velocity, or turnover, dropping 22% to record lows.