we are getting more of your calls here on washington journal, momentarily. in the wall street journal, the fed maps out the 2022 rate increases. the author of that piece is the key correspondent for the wall street journal. nick, good morning to you. the question on jay powell's turn here is what changed the fed chair's mind and the federal reserve's mind on inflation? guest: first, the answer is, the fed was expecting inflation to rise this year, but not nearly as much as it has. they thought we would be past the worst of it. used car prices, for example, are up 30% this year. it does not seem like a sustainable state of affairs.

the other factor is, if you look at the labor market, the unemployment rate right now is at 4.2%. the meeting before the last one they had was a full point higher. that dramatic improvement to the labor market is a sign to the fed that the job market is much tighter than they expected it to be. they are concerned that if wages accelerate, you could have an inflationary cycle take hold that is separate from the bottleneck driven inflation that we have had on the supply side. host: the pieces that came out of that is that the fed will raise interest rates by .75%. what does that mean for the economy in terms of how much a

car loan might cost? what will affect those rates? guest: when the fed raises overnight borrowing costs, it usually does have an effect on longer-term interest rates, 30 year mortgages, credit cards and auto loans could get more expensive next year. one curiosity is that long-term interest rates, even though the fed has been signaling that they would tighten policy next year, you have not seen long-term interest rates go up. does not mean mortgage rates will go up one for one. it will be interesting to see if you get more movement because that is how the fed slows the economy when they decide it is time to take away the punch bowl. the 10 year treasury, which sets

the borrowing cost for a lot of different things in the economy, if it doesn't go up, the fed might actually have to raise rates even more. host: there was an announcement that they were going to ease the monetary stimulus. how long has that been in effect? what effect might that have on the markets and the economy? guest: the fed's monetary stimulus is what they use when they cut interest rates to zero. they did that for the global financial crisis in 2008. once interest rates are zero, but you want to push on the gas pedal, what can you do? they like government bonds. they started doing that in march of 2020, when the pandemic hit. they cut interest rates to zero. markets were in complete dysfunction. they were doing it because of

the treasury market. it was breaking down. they continued to buy securities after that in the summer of 2020, they said we will do this. last year they said they would continue to do it until they made more progress on their goals of stronger employment and stronger inflation. host: what is the concern on the pandemic, particularly the omicron variant, the breakout happening now? guest: the challenge for the fed is initially, when the pandemic -- it was very disruptive to the economy. it was negative for growth and employment, but what we have seen now, the u.s. is not approaching this the way that countries in asia are. they have a zero covid tolerance. we have not done that. the successive waves of the

virus have not had as sharp an impact on growth. the rest of the world, especially china and are trading partners that we have in asia, they are taking more restrictive measures. the net of that is that the virus may be net inflationary. it may not drag on the economy as much, but it might push prices higher. it might keep people from going to work, who might otherwise be working. you put more pressure on wages. that is inflationary. the fed, even though they see this as not being great for the economy, it does not mean that they will be able to maintain easier policy, the way they did when this first hit. host: does the fed view the supply chain issues as something

that they are watching closely -- does the fed chair think that when it eases up that inflation will also ease up? guest: yes. when you follow what the fed is saying, they have been saying that inflation will be transitory, but their projection for interest rates makes them think that it will happen, just not as soon expected. the supply chain bottlenecks will resolve themselves. the fed raising interest rates in march and june of next year is not designed to deal with the inflation that we have right now. it is designed to prevent those inflationary dynamics from higher wages, from really taking hold and having the kind of wage price spiral that we had in the 1970's and 1960's.

host: accelerating stimulus, he is the chief economics correspondent for the washington journal and on twitter.

he talked about threats from china, russia, and iran, the u.s. withdraw from afghanistan, and climate change. this is about an hour. mr. sullivan: it is like old times. with slight exceptions. welcome to today's meeting at the council on foreign relations, one of the final meetings of our 100 year as an institution. for those of you i have not seen in a year or two, i'm still the president of the council and our guest today is jake sullivan, the 28th assistant to the president for