The U.S. Fed navigates a difficult path, with much resting on its success

EDITORIALS

The U.S. Fed navigates a difficult path, with much resting on its success

The market plunge shows there is little faith in the Fed’s ability to secure a ‘soft landing’

U.S. Federal Reserve Chairman Jerome Powell speaks during a news conference in Washington on Wednesday. The Fed raised interest rates the same day by the steepest increment since 2000. | BLOOMBERG

May 10, 2022

Concerned that inflation is much too high, the U.S. Federal Reserve increased interest rates by half a percentage point this week.

It was a bold move, but one that had been signaled well in advance and was bounded by Fed Chairman Jerome Powell’s comments that even larger increases were not being considered. Nevertheless, markets plunged sharply around the world.

That fall is a vote of no confidence in the Fed’s ability to safely navigate between competing imperatives: controlling inflation and keeping the economy growing. History suggests that skepticism is in order given the enormity of the challenge and the narrow margin of error.