Fed’s tough challenge: Confront inflation and bank jitters
WASHINGTON — Still grappling with persistently high inflation, the Federal Reserve faces an entirely new — and in some ways conflicting — challenge as it meets to consider interest rates this week: How to restore calm to a nervous banking system. Last week, the European Central Bank imposed a half-point rate hike to try to reduce an 8.5% inflation rate despite jitters caused by the struggles of Switzerland’s second-largest lender, Credit Suisse. “Inflation — it’s still got some legs, unfortunately,” said Nathan Sheets, a former Treasury official and Fed economist, now chief global economist at Citi. The Fed’s efforts to reduce inflation to its 2% target, Waller said, “will be slower and longer than many had expected just a month or two ago.” The banking troubles have also intensified fears among many economists that the economy could soon tumble into recession. The potential slowdown in lending “is going to do some of the Fed’s work for it,” said John Roberts, a former Federal Reserve economist said.
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