The Fed predicted inflation-fighting 2022 rate hikes, and stocks surged. Should consumers cheer, too?


Federal Reserve Chairman Jerome Powell signaled Wednesday that the U.S. central bank is done treating inflation as a "transitory" phenomenon. Powell announced a faster-than-planned wind-down of the Fed's bond-buying program and said the Fed board may raise interest rates three times next year, upping the benchmark short-term rate from zero to a historically low 0.9 percent by the end of 2022.
Wall Street applauded Powell's announcement. "Stock prices rose gradually and then surged after the Fed issued its statement and Powell began speaking at a news conference," The Associated Press reports. "At the end of the day, stock market averages were all up more than 1 percent, a substantial gain."
Should U.S. consumers be equally pleased? The Federal Reserve hopes so.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
One reason Powell dropped talk of "transitory" inflation is that the Fed now thinks the global supply chain snarls driving inflation will last longer than previously thought, and transitory doesn't relay that message, Politico's Victoria Guida explains. Prices will likely stabilize by next summer, and "part of this pivot is an effort to head off any change in expectations about inflation," she adds, "because inflation can also be sort of a self-fulfilling prophecy."
Gas prices are dropping from their recent peak, supply chain bottlenecks are easing, people are spending down their pandemic government stimulus checks, and Fed policymakers forecast Wednesday that inflation will slow to a 2.6 percent annual rate by the end of next year, AP reports. But if "consumers start to expect inflation to continue, Powell noted, it can make it harder for the Fed to control. If households expect higher prices, they tend to demand higher wage increases, which can then lead companies to raise prices further to offset their higher labor costs."
Currently, while inflation is way above target levels, wages are rising, hiring is solid, and unemployment has dropped to 4.2 percent and should hit 3.5 percent next year, Powell said. With the U.S. headed toward "maximum employment," the Fed will pivot to tamping down inflation, largely through tightening credit.
On a practical level, "the Fed's actions may raise borrowing costs across the economy in the coming months," AP reports. While borrowers might eventually take a small hit, higher interest rates help anyone with a savings account.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.
-
Book reviews: 'America, América: A New History of the New World' and 'Sister, Sinner: The Miraculous Life and Mysterious Disappearance of Aimee Semple McPherson'
Feature A historian tells a new story of the Americas and the forgotten story of a pioneering preacher
-
Another messaging app used by the White House is in hot water
The Explainer TeleMessage was seen being used by former National Security Adviser Mike Waltz
-
AI hallucinations are getting worse
In the Spotlight And no one knows why it is happening
-
Warren Buffet announces surprise retirement
speed read At the annual meeting of Berkshire Hathaway, the billionaire investor named Vice Chairman Greg Abel his replacement
-
Trump calls Amazon's Bezos over tariff display
Speed Read The president was not happy with reports that Amazon would list the added cost from tariffs alongside product prices
-
Markets notch worst quarter in years as new tariffs loom
Speed Read The S&P 500 is on track for its worst month since 2022 as investors brace for Trump's tariffs
-
Tesla Cybertrucks recalled over dislodging panels
Speed Read Almost every Cybertruck in the US has been recalled over a stainless steel panel that could fall off
-
Crafting emporium Joann is going out of business
Speed Read The 82-year-old fabric and crafts store will be closing all 800 of its stores
-
Why is the threat of stagflation rising?
Talking Points Inflation is sticky. Trump's tariffs won't help.
-
Trump's China tariffs start after Canada, Mexico pauses
Speed Read The president paused his tariffs on America's closest neighbors after speaking to their leaders, but his import tax on Chinese goods has taken effect
-
Pros and cons of tariffs
Pros and Cons As Trump imposes tariffs on cars from overseas, here are the arguments for and against duties