The result of the rate hikes is increasingly higher borrowing costs as the Fed fights the most painfully high inflation in four decades and ends a decades-long era of historically low rates.
Americans trimmed their spending unexpectedly in May compared with a month before, underscoring how surging inflation on daily necessities like gas is causing them to be more cautious about buying discretionary items.
A series of sizable increases would heighten borrowing costs for consumers and businesses, likely leading to an economic slowdown and raising the risk of a recession.
The producer price data captures inflation at an earlier stage of production and can sometimes signal where consumer prices are headed. It also feeds into the Federal Reserve’s preferred measure of inflation, the personal consumption expenditures price index.
The prospect that the Fed will accelerate its credit tightening, further raising borrowing costs for households and businesses, drove the stock market sharply lower Monday. The broad S&P 500 index fell into bear-market territory.
There is little evidence that gasoline prices, which hit a record national average of $5 a gallon on Saturday, will drop anytime soon.
The S&P 500 sank 2.9% to lock in its ninth losing week in the last 10, and tumbling bond prices sent Treasury yields to their highest levels in years.
As high prices leave less income for discretionary purchases, the risk to the economy is a more pronounced slowdown in consumer spending.
Some evidence in recent weeks had suggested that inflation might be moderating, particularly for long-lasting goods that were caught up in supply chain snarls and shortages last year. But that trend appeared to reverse itself in May.
More Americans applied for jobless aid last week, but the total number of Americans collecting unemployment remains at a five-decade low.
The incessant run-up in prices has motorists testing the limits of their fuel gauges: AAA fielded 50,787 out-of-gas calls in April, a 32% jump from the same month last year.
Stagflation is the bitterest of pills: High inflation mixes with a weak job market to cause a toxic brew that punishes consumers and befuddles economists.
The Federal Reserve and Treasury Department have been increasingly blamed by legislators and the public for allowing inflation to reach record highs—notably an 8.3% leap in consumer prices over the past year.
While wealthier shoppers continue to splurge, low-income shoppers have pulled back faster than expected in the past two months. They’re focusing on necessities while turning to cheaper items or less expensive stores. And they’re buying only a little at a time.
The job growth in May was high enough to keep the Federal Reserve on track to pursue what’s likely to be the fastest series of rate hikes in more than 30 years.
The May jobs report the government will issue Friday coincides with inflation near a four-decade high and worries about higher borrowing rates and a potential recession roiling the stock market.
The historically high number of unfilled jobs and the number of people quitting has forced employers to pay more to attract and keep staff. Those trends are driving solid wage gains for America’s workers, particularly those that switch jobs.
The White House launched a push Tuesday to contain the political damage caused by inflation after President Joe Biden complained for weeks to aides that his administration was not doing enough to publicly explain the fastest price increases in roughly four decades.
President Joe Biden will meet with Federal Reserve Chairman Jerome Powell on Tuesday as soaring inflation continues to carve up Americans’ earnings.
Prices for just about everything Americans buy have spiked in the past two years. Inflation, which had been scarcely noticeable for decades, is suddenly the top concern most people have about the economy. And it all seemed to catch Washington, D.C., by surprise.
