Where’s the economy headed? To quote the Fed chief: ‘Hard to say’

Where’s the economy headed? To quote the Fed chief: ‘Hard to say’
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If the economy looks confusing to you, rest assured — it looks that way to the people in charge of stabilizing it, too.

When the Federal Reserve raised interest rates yet again this week, the central bank’s case for how it would tackle inflation without causing a recession boiled down to: It’s unclear. What are the odds of avoiding a downturn? “Hard to say,” conceded Chair Jerome H. Powell. How high will interest rates go? “Very uncertain.” In an hour-long news conference on Wednesday, Powell said “don’t know” four times.

Powell is hardly the only one without answers, and his remarks reflect how confounding the economy remains for those inside and outside the Fed. The markets, policymakers, households and businesses have been operating without a playbook for two-and-a-half years. And now, the latest wave of uncertainty is swelling, with few guarantees about what’s still to come, or how painful the path ahead will be.
“Economists, generally, are being humbled by the experience of the past year,” said Karen Dynan, a former chief economist at the Treasury Department who is now at Harvard University. “And I think the Fed is also realizing that they don’t have as good a grasp on what’s likely to happen as they might have thought earlier.”

There are plenty of reasons. Inflation is still near 40-year highs, with many parts of the economy not yet responding to the Fed’s aggressive moves. This week, the Fed hiked rates for the sixth time since March, announcing its fourth consecutive increase of 0.75 percentage points — when it hadn’t previously raised rates that steeply even once since 1994. That brought the Fed’s policy rate to between 3.75 and 4 percent, with the growing expectation that rates could eclipse 5 percent early next year.

Source : washingtonpost

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