Federal Reserve officials were concerned at their meeting last month that consumers were starting to anticipate higher inflation, and they signaled that much higher interest rates could be needed to restrain it.
The signs of economic sluggishness have intensified fears that high prices and rising rates could . Such concern has further complicated the Fed’s policymaking because a recession would normally lead it to cut rates to stimulate growth.
“We very much hope that the sobering data since the June meeting will push members towards the smaller hike,” of a half-point rather than three-quarters in July, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “They wanted to send a clear signal that they will not accommodate permanently higher inflation, but that job is done.”
Powell also cited a survey of consumer sentiment conducted by the University of Michigan that said consumers’ longer-term inflation expectations were starting to rise more quickly. That unnerved Powell and other Fed officials, because if people expect higher inflation, that sentiment can lead to an acceleration of prices.
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