Overnight Finance

On The Money — Powell prepares US for Fed’s inflation fight

Madeline Monroe/Julia Nikhinson/iStock
Madeline Monroe/Julia Nikhinson/iStock

The chairman of the Federal Reserve is warning Americans they could feel the bank’s higher interest rates. We’ll also look at the resilience of retail sales and a summer travel nightmare.  

But first, the latest on the national baby formula shortage. 

Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan LaneAris Folley and Karl Evers-HillstromSubscribe here.


Powell: Fed’s fight against inflation may bring ‘pain’ 

Federal Reserve Chairman Jerome Powell warned Tuesday the U.S. could feel “some pain” as the central bank raises interest rates to fight inflation, insisting the Fed would do whatever it takes to curb price growth. 

During a live interview for The Wall Street Journal’s “Future of Everything” summit, Powell said the Fed will continue to raise interest rates until inflation starts to fall and the forces driving prices higher fade, even at the risk of a deeper economic slowdown. 

  • Powell expressed confidence the U.S. economy could handle rising interest rates without falling into a recession.  
  • With two open jobs for every unemployed person and a jobless rate near 50-year lows, he said, the U.S. economy has plenty of room to handle a decline in activity driven by higher interest rates. 
  • But Powell made clear the Fed would not stop fighting inflation until it was on its way back toward the bank’s 2 percent annual target, even if it meant raising rates to levels meant to restrict the economy. 

Sylvan has more here. 

The background: The Fed’s ultimate goal is to raise interest rates at a fast enough clip to slow both consumer and business spending. 

  • As households and firms face higher borrowing costs, they are less likely to spend money on goods and services in high demand.  
  • The resulting dip in demand should theoretically force prices to stabilize, with fewer buyers willing to buy goods and services at prices driven up over the course of the year.   

The Fed chief has made clear the bank will do whatever it takes to stop inflation, which some economists fear could mean raising rates to a level likely to cause a recession. Here’s more on Powell’s biggest challenge yet. 


SOLD OUT SUMMER

Massive summer travel demand drives skyrocketing costs 

Most Americans are eager to travel this summer, but skyrocketing costs could upend their vacation plans.  

Airfares rose nearly 19 percent from March to April, the largest month-over-month increase for plane tickets on record, and are up 33 percent from last year. Hotel and vacation rental prices are also rising, leaving travelers with few options to save money.  

“Prices are having little impact on Americans’ summer travel plans, though some travelers will take fewer or shorter trips or adjust their travel budgets,” said Tori Emerson Barnes, executive vice president of public affairs and policy for the U.S. Travel Association.

  • With large numbers of Americans taking trips for the first time since the start of the pandemic this summer, airlines and hotels that shed jobs due to COVID-19 often don’t have the capacity to meet demand, driving prices higher.   
  • Airfares are under pressure from record jet fuel costs and a limited number of seats being sold by carriers that say they don’t have enough pilots.  
  • At the same time, hotel and motel prices rose by nearly 23 percent since April 2021, while rental car prices rose more than 10 percent.  

Karl has more here

PEOPLE KEEP BUYING STUFF

Retail sales rose 0.9 percent in April 

Retail sales rose 0.9 percent in April as a rebound in automobile sales and a pickup in dining powered another monthly increase in consumer spending, according to data released Tuesday by the Census Bureau. 

Sales by retailers, restaurants and bars totaled $677.7 billion in April, according to the Census Bureau, up from a revised March total of $671.6 billion. Retail sales are adjusted for seasonal spending pattern changes, but not for inflation. 

Breaking down the numbers: Economists expected retail sales to rise 1 percent last month after auto dealers reported a sharp pickup in sales and restaurant activity rose in April.  

  • Both were key drivers of the April increase in retail sales, which has steamed ahead despite inflation hitting an annual rate of 8.3 percent last month, according to Labor Department data. 
  • Sales by restaurants and bars rose 2 percent in April, in line with a 1.9 percent monthly increase in March. Retail sales minus auto dealers and auto parts shops rose by 0.6 percent in April, and retail sales without the food and beverage industry rose 0.7 percent.  

“These broad increases reflect the continued strength of consumer demand in the US, despite rising economic risks. Retail sales have shown steady growth in recent months, despite the worsening outlook in consumer confidence,” wrote Cailin Birch, global economist at Economist Intelligence Unit, in a Tuesday analysis.

“However, strong growth in retail sales figures year on year also reflects steep inflation, as prices have also risen across the board in recent months.”

Sylvan breaks it down here. 

STOPPING THE SHORTAGE? 

DeLauro files legislation to address baby formula shortage 

House Appropriations Committee Chairwoman Rosa DeLauro (D-Conn.) on Tuesday filed supplemental funding legislation to address the nationwide baby formula shortage.

If passed, the legislation would greenlight $28 million in emergency funds to help the Food and Drug Administration (FDA) address the shortage and prevent future shortages, the congresswoman’s office said.

“The stories of mothers and fathers struggling to find formula and the images of empty store shelves are heartbreaking,” De Lauro said in a statement. “Parents and caretakers across the country cannot wait—they need our support now. This bill takes important steps to restore supply in a safe and secure manner.” 

Aris has more here

Good to Know

As tremors in global supply chains continue to rattle everything from auto manufacturing to baby formula, the especially intricate domestic semiconductor industry is looking to Washington for help bringing more of its production to the U.S. and getting insulated from geopolitical hazards. 

But it won’t be easy. State-of-the-art chipmaking and packaging has long been centered in East Asia and particularly in Taiwan, where powerhouse fabricator TSMC has been working for decades to position itself as an indispensable mass producer of chips for client companies including AMD, Apple and Texas Instruments. 

Here’s what else we have our eye on: 

  • A simmering feud between President Biden and Jeff Bezos has spilled into the open after the Amazon founder went on the offensive to criticize the White House’s approach to inflation and taxing wealthy corporations.  
  • A newly formed coalition is pushing to ensure that the 2023 farm bill focuses on regenerative agriculture, a practice that advocates say improves soil health, reduces harmful emissions and transforms small farms into profitable businesses. 

That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow. 


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