Still grappling with persistently high inflation, the Federal Reserve faces an entirely new — and in some ways conflicting — challenge as it meets to consider interest rates this week.
The two simultaneous problems would normally push the Fed in different directions: To fight elevated inflation, it would raise its benchmark rate,, for the ninth time in the past year. But at the same time, to soothe financial markets, the Fed might prefer to leave rates unchanged, at least for now.
Vincent Reinhart, a former top Fed economist now at the investment bank Dreyfus-Mellon, noted that the central bank prefers to manage financial stability issues separately from its rate decisions. One goal of a series of emergency steps the Fedto bolster the banking system is to allow it to separately address inflation through its rate policies.
in a deal orchestrated by banking regulators to try to prevent potentially calamitous turmoil in global markets.. It also unveiled an expansive emergency lending program to provide ready cash for banks and other financial institutions. And it sweetened the terms for the banks to borrow from a long-standing Fed facility known as the “discount window.”to banks, including a record amount from the discount window.
“Inflation — it’s still got some legs, unfortunately,” said Nathan Sheets, a former Treasury official and Fed economist, now chief global economist at Citi. “The labor market is still booming.” “The recent data indicate that we haven't made as much progress as we thought,” Christopher Waller, a member of the Fed's Board of Governors, said this month. The Fed's efforts to reduce inflation to its 2% target, Waller said, “will be slower and longer than many had expected just a month or two ago.”
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