Federal Reserve Continues to Push Against Inflation but the Labor Market Is Pushing Back

Two months into the new year, consumers are spending less, economic growth has slowed, the inflation rate has declined (although arguably not as much as the Fed would like), and the over-heated housing market has cooled.

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The housing slowdown some analysts have been predicting for more than a year has arrived – perhaps.  That’s not a unanimous view, but it does reflect what appears to be a growing consensus, supported by an array of negative indicators that are becoming harder to dismiss or to ignore.

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In a move telegraphed clearly and undeterred by the Crimea turmoil, the Federal Reserve increased  interest rates for the first time in four years, raising its benchmark rate by one-quarter- of percentage  point, from zero to a range of 0.25 percent to 0.5 percent, and indicating that additional rate hikes are coming. 

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Imagine a high-wire act performed without a net.  That describes the Federal Reserve’s effort to curb inflation without crashing the economy.  Success will bring applause and relief; failure, a brief downturn, at best, with a prolonged recession the worst case outcome. 

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Russia’s invasion of Ukraine has unleashed an immigration tsunami, as millions of Ukrainian refugees have sought safety in Poland and other neighboring countries.