Jobs come to mind as the Fed tightens monetary policy
The sound finances of US banks, companies and households, made public during the pandemic by Federal Reserve staff as a source of sustainability, it could be an obstacle to fighting inflation as central bankers raise interest rates in an economy that is so far able to pay the price.
Outlining its aggressive turn towards tighter monetary policy, Fed officials say they hope to shrink the economy without destroying jobs, with higher interest rates slowing things down enough for companies to cut current high vacancies while avoiding cuts or blows to household incomes.
But that means the pain of controlling inflation will have to fall mostly on capital owners through the slower housing market, higher corporate bond rates, lower equity values and a rising dollar to make imports cheaper and encourage local producers to keep prices down.
Economists, including current and former Fed employees, note that, unlike previous Fed interest rate cycles, there is no obvious weakness in use or asset bubble bursting to quickly plunge into inflation. – nothing like the heavily overpriced housing markets of 2007 or the overvalued internet stocks of the late 1990s to give the Fed a bigger boost in the expected rate hike.
Adaptation to the stricter Fed policy is quick through some measures. But it is moderate in a number of markets, none catastrophic, with little impact still on inflation or consumer spending.