The Federal Reserve’s missteps in waiting too long to tackle the greatest run-up in prices in four decades has shaken trust across markets and the American public that it is up to the task of curbing inflation.
On the eve of a high-stakes Fed policy announcement, investors, economists and policymakers were on edge over how sharply the Fed would raise interest rates to deal with inflation, which hit a new peak in May.
Financial market volatility and losses deepened on Tuesday, fueled by fears that the Fed continues to misjudge inflation and will come down too hard on the economy, prompting a recession. The S&P 500 has fallen into bear market territory — a 20 percent fall from the most recent high — and all the indexes have accelerated losses for the year.
Even more concerning are new signs that families have lost faith in the Fed’s policies. Consumer sentiment in June sank to a low not seen since the 1980 recession, according to a University of Michigan survey. Similarly, a poll by The Washington Post and George Mason University’s Schar School of Policy and Government found that most Americans expect inflation to worsen and are adjusting their spending habits, a mind-set that can make the surge in prices even worse.
Most Americans expect inflation to get worse, Post-Schar School poll finds
Fed policymakers were already under enormous pressure to slash inflation without inviting disaster for the recovery or spurring a new round of job losses. Now, the Fed is in an even more fraught position, one that goes beyond monetary policy and instead targets the Fed’s most essential tool of all: its credibility.
www.msn.com/en-us/money/markets/markets-and-households-lose-faith-that-fed-can-handle-inflation/ar-AAYsu2v
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