A Year In, the Federal Reserve’s Scramble Is Looking Costly
The central bank is likely to pay a price for its late start in raising rates, and SVB could be just the beginning.
The year of raising furiously.
Photographer: Win McNamee/Getty Images
Exactly a year into its campaign of monetary policy tightening, the Federal Reserve faces its toughest set of choices yet: It can forge ahead with its inflation fight or pivot to address growing banking-sector fears. Behind Door No. 1: an ever-approaching recession. Behind Door No. 2: entrenched inflation. Unfortunately, it’s looking like a lose-lose scenario of policymakers’ own making.
The original mistake, of course, was Chair Jerome Powell’s eagerness to dismiss the signs of inflation in 2021 as “transitory.” Even in the face of extraordinary fiscal stimulus and a strong economic recovery, he refrained from turning off the quantitative easing spigot and left interest rates near zero until inflation measured in the consumer price index was near 8%. An already hot housing market was goosed by mortgage rates below 3%; speculative cryptocurrencies and tech stocks were allowed to run wild; and, of course, consumer prices inflated as they hadn’t in four decades.