of borrowing costs, including for mortgages,
credit cards and some business loans. Just three
months ago, the Fed had penciled in barely one
rate increase in 2022.
The Fed’s hard pivot comes after consumer
inflation reached a four-decade high in
November, and it reflects a growing recognition
among Powell and other policymakers that the
economy hasn’t progressed the way they had
expected it would just a few months ago.
For much of 2021, they had calculated that
inflation would be “transitory” and were more
concerned that unemployment might not fall
fast enough. Yet substantial price increases
have spread beyond such pandemic-disrupted
industries as autos, electronics and building
materials into rents, restaurant menus and
medical care. Rising inflation has become a
heavy burden for many American households,
especially those that are struggling to afford
food and fuel costs, and a source of public
discontent with President Joe Biden and
Democrats in Congress.
Fed officials still expect inflation to cool by the
second half of next year. Yet they now foresee
a significant risk that high prices will persist.
That likelihood was reinforced by a government
report that wholesale inflation jumped 9.6% for
the 12 months ending in November, the fastest
year-over-year pace on records dating to 2010.
The unemployment rate has also dropped
quickly since Fed policymakers last met in early
November — from from 4.8% to 4.2% — a
sign the economy is solid and edging closer to
maximum employment, one of the Fed’s two
mandates along with price stability.