WASHINGTON, June 10 (Reuters Breakingviews) – The nice-guy central banker has no place in a world of high inflation. Consumer prices in the United States jumped by a forecast-busting 8.6% in May, year-over-year. Federal Reserve Chair Jay Powell now has little choice but to go bigger on rate hikes, inflicting more pain on people already struggling with high food and gas prices. Doing so is long-term rational, and short-term villainous.

Friday’s inflation numbers punctured the theory – borne out by economists surveyed by Reuters – that prices had steadied in May. Instead, they jumped to their highest level since 1981. Grocery costs rose even more than the headline number with a nearly 12% year-on-year increase, the Labor Department said on Friday. Gas, the life-blood of the U.S. economy, was up almost 49% from a year ago.

Powell’s only option is to hurt Americans more. Last month, he essentially ruled out rate increases of more than 0.5 percentage points at a time. With inflation surging rather than receding read more , he may have to consider larger hikes – say, three-quarters of a percentage point – that will make credit-card balances and mortgages more expensive, and possibly tip the economy into a recession.

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Consumers were already in distress read more . An index that measures mortgage-application volumes fell to its lowest level in 22 years because of higher borrowing rates, the Mortgage Bankers Association said on Wednesday. Households are spending an extra $341 a month to purchase the same goods and services as they did a year ago, according to Moody’s Analytics.

Paul Volcker’s example might offer some solace for Powell. Central bank chief from 1979 to 1987, Volcker took on inflation that had hit 13.5% the year after he was appointed and doubled interest rates to nearly 20% in just six months. Back-to-back recessions ensued; the unemployment rate hit almost 11% in 1982. Some lawmakers proposed impeaching Volcker. But a year later, inflation was down to 3.2%, and the economy boomed thereafter.

Powell likely won’t have to make as big of a move on rates, but hiking them in larger increments will still harm average Americans. And it’s unclear how much influence monetary policy will have given the surge in food and gas prices is largely due to war in Ukraine. As with Volcker, history may deem Powell a hero – but he is on course to make plenty of enemies in the meantime.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)


The U.S. consumer price index, a measure of inflation, rose 1% in May from April and increased 8.6% year-over-year, the Labor Department said on June 10. Economists surveyed by Reuters expected a monthly increase of 0.7% and an 8.3% jump from a year ago.

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Editing by John Foley and Amanda Gomez

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