Federal Reserve Chair Jerome Powell testifies before Senate Banking Committee
Raising interest rates high and fast enough to quell inflation, without tightening credit so much that it throttles the economy and causes a recession.
WGVU’s Patrick Center recently spoke with economist Paul Isely, Associate Dean in the Seidman College of Business at Grand Valley State University.
Is there a balancing act that you would prescribe to fewer Jerome Powell?
He really got no good choices at this point. I mean, literally there are no good choices.
We overheated the economy and we ended up with supply shocks. When you combine those 2 things together, the options that the Federal Reserve has is not wide enough to do a targeted slow down. They have to slow things down. But the trick is is when they do something when they increase interest rates, they won't know the effect of that increase
3 to 6 months. So, if they increase them in May like they did. And now they saw higher inflation in June, which they did. It's too early for them to know where they were there
change that they made in May actually did anything. But now you have the markets freaking out, but it didn't do anything. So, just like everything else in American society.
People are impatient. They want the Federal Reserve to be able to click it and turn things off. But what we know is the tools that they have will change things slowly over the next 6 months to 12 months. And so, if we crank too hard, then we end up with a recession. If we don't crank hard enough, then we end up with a lot of extra inflation. But it's not like I get to adjust immediately. I make my adjustment in that. I got to wait 6 months to see whether I did enough or not awful place to be. And so, I wouldn't want to be on the Federal Reserve right now. Could I promise you that there's almost nothing that they can do that's going to make people happy at this point.