The numbers keep rolling in to confirm: Things look very good in the U.S. economy. Employers added half a million jobs in January, more than twice as many as economists had predicted. Spending by U.S. households rose 1.8% over December, and retail sales jumped at a higher rate than they had for nearly two years.
You'd think it would be time to kick back, sip a martini, and celebrate. But it's not. The continued strength of the U.S. economy means the Federal Reserve's efforts to slow inflation by increasing interest rates are not working as quickly as they'd hoped. Inflation rose 5.4% in January from a year ago, according to data from the Fed's preferred index released Feb. 24.
The Fed wants inflation to be around 2% and will keep increasing interest rates until it gets near that target. (Whether it should give up on that target is a question the Fed doesn't seem interested in pursuing at the moment.)
"The consumer is the stallion running wild, and the Fed is the cowboy and the Fed will win at the end of the day," says Mark Zandi, chief economist at Moody's Analytics.
Already, the Fed has raised interest rates from near zero in April 2020 to a 15-year high of above 4.5%, the most aggressive policy since the 1980s. Officials don't expect to reduce interest rates until at least 2024.
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