washington journal continues.

host: at our table this morning, nick timiraos, it could go high, chairman palace is too soon to tell if latest rises the last rates the highest level in 22 years, why is that important? guest: it means that if you are borrowing to buy a house or a car or paying off credit cards, it is getting more expensive. that is the price of trying to get inflation down, because inflation has been at a 40 year high, so the fed is trying to slow down the economy by making it more expensive to borrow. that will slow down investment spending and the idea is as you bring down demand, you can get inflation down over time. jobs are at risk. this is not an easy exercise. there is some danger involved. traditionally when the fed raised interest rates as rapidly

as has occurred over the last year, we have had a recession. usually a recession creeds enough slack in the economy and form of higher unemployment that you bring inflation down. what the fed is trying to do is delicate. you do not want to do more than you have to do. if you don't have to have a recession, you want to avoid it. they have slowed down interest rate increases, but we are at the highest level since 2001. host: it could go higher, chairman palace is too soon to tell if latest rises the last one needed in this inflation battle. guest: the big question yesterday was is the fed done, that comes down to what you think is going to happen in the economy the next few months. the fed says it is data dependent, they will look at the next couple months of employment figures and inflation figures to decide whether the economy is cooperating and interest rate creases are doing enough to slow the economy down.

in june, they released quarterly projections where they say what they think they will do with interest rates under their main economic forecast. that projected two more increases. yesterday was one of those, they have three more meetings this year. powell yesterday did not sound like someone who was extremely eager to do the next increase in september. they did not raise rates last month, that was their first pause since they began raising rates early last year. so it sounds like they would like to space things out if they can, but he did not take it off the table because there are some members of the committee that probably want to raise interest rates again at the next meeting. host: why pause the one time then pick back up? guest: the way the fed chair explained it was they have been slowing down the pace of increases over the past year. if you look back it with the was doing a year ago, they were raising interest rates by three

quarters of a percentage point at every meeting. they had not raised that much since 94, that is very fast-paced. the fed would say it was necessary because inflation was so high and interest rates were so low. they were doing three quarters of a point, then they slowed it. the idea of skipping the june meeting was they are further slowing down the pace. why would you do that? it takes time to see how interest rate increases will slow down the economy. nothing changes the very next day. if you are thinking about buying a house or car, these are decisions you make over the course of several months. you give yourself a little more time to see how the economy is handling those increases. guest: how did the economy handle the pause? guest: we will see over the next few months. we got new gdp numbers and in

the second quarter, the economy grew at a solid rate. that is about what you would want to see if the economy was expanding at capacity. so far, so good. the other reason the fed skipped or paused in june was we had seen the bank stress after the failure of silicon valley bank and a couple other banks in the spring, there was some concern that would lead to a sharper slowdown in bank lending. you are raising interest rates, trying to slow down the economy, but banks are going to suddenly pulled back. the skip in june was to see how the banking system was going to react to some of the stresses. we have second-quarter earnings in the banking system the last couple weeks -- banks seem to be managing may be better than you might have feared. host: we want to get viewers involved this morning, what is

the economy like where you live, what is the reaction to what you saw from the federal reserve yesterday? gas prices are going up, food prices will go back out. if you live in the eastern or central part of the country, (202) 748-8000. mountain pacific, (202) 748-8001 . alan is first in brooklyn. caller: good morning. i am not the first person to mention, several people in congress have discussed this. elizabeth warren, we have a backwards set of tools available by statute for the fed to deal with inflation. there has been a drastic cutback in the rate of enforcement of antitrust laws to prevent the accumulation of monopoly and pricing power by large companies , there is no corresponding tool in the fed's hands to raise

taxes on the profits that result from this kind of monopoly pricing power. until we include that tool with interest rates that hurt the smallest people in the country, it is as if we are limiting the power of doctors to cure people by letting them use bleeding techniques used in the 15th century instead of giving them modern pharmaceuticals. host: let's get a response. guest: that is a point you hear from time to time, are reusing the right tool for the job? you kind of go to war with the system that you have. if they wanted to direct other regulators like antitrust authorities to take steps to try to slow down the economy, they could. we have chosen over several decades that this is the way we

are going to deal with inflation. maybe some people did not think about it so much because inflation was relatively low and stable. from the fed point of view, they cannot wait for other people to act. they have been assigned at this responsibility to keep prices stable. they have a 2% inflation target. they are not going to be in a position to wait around for congress to act or for others to act. if you look at the maintenance over duties, you saw a lot of the discussion, maybe you can use fiscal policy, tax policy. that did not work terribly well. we are the ones who are going to deal with it, if congress wants to come in and cut spending and raise taxes, that is their prerogative. but the fed will not wait around for other people to take up arms

against inflation. host: connecticut, good morning. caller: good morning, how are you? host: good, question or comment. caller: i have a comment. the way it is bringing down inflation right now, isn't it making the rich richer and the poor poorer? the other gentleman that called, he put it very intelligently. it seems like there is a more logical way to do it than the way jay powell is doing it. the banks are getting richer, the rich are getting richer and poor people like me are getting poorer and poorer every day. guest: that is -- there is a lot of people who are frustrated with where we are right now with inflation. the point to keep in mind is if you do not deal with inflation and you allow it to become more persistent and let it run

through the economy, we have seen in other countries is it is terrible for the poor. if you are on fixed income, not making a lot of money and your paycheck cannot cover the increase in prices for goods and services that you need, it is worse for the poor. the challenge here is there is never an easy fix when you get a problem like inflation. the question now is, over what period of time do you deal with it? host: the federal reserve chair said yesterday the board no longer predicts a recession. what did you make of that line? guest: what he is talking about is the fed has a staff of hundreds of economists that put together a finely tuned forecast ahead of every meeting. for the march meeting after the failure of silicon valley bank, they put a recession in the forecast, which is very unusual. economists have a hard time predicting recessions.

so when the staff said base case assumption is we are going into a recession later this year, that was a big deal. they maintained the forecast in may and june. the staff no longer has a recession for the economy. they have a sharp or notable slowdown at the end of the year, but they are no longer projecting a recession and there has been a lot of optimism among investors you could have a so-called soft landing where you bring down the inflation rate without significant increase in unemployment or a severe downturn. we have had one good month of inflation news, headline inflation has come down a lot. the fed looks at a different measure called core inflation that excludes food and energy prices, that did not go up quite so much. the hope is may be the soft

landing is more plausible and risk of recession is going down a bit. host: wall street may be optimistic, but he said he would not use that word. he says i see a pathway, what does that mean? guest: the reason he cannot be too optimistic, the fed has a 2% inflation target. if they can get things down below 4%, that is still pretty high for them. the easy part of getting inflation down his supply chains are healing, energy prices are coming down. you get through some of the easier parts of getting inflation down and to get inflation the last mile down to 2%, it may require higher unemployment, less job growth. that could be more difficult. you do not want to put up the mission accomplished banner too soon, so he is being careful. host: omaha, nebraska. good morning. caller: good morning, i had a

couple of questions for the guest. good morning to america. the guest said earlier, he was saying government did an interest pause. when they did the interest pause, it takes several months to see how it works. the government raises rates -- every time they did for the last 11 months, how long does it take for us to see those things in action? it seems like they did that really quickly further rate increases and i do not think they help the poor people. to me, it seems like inflation happened when corporations -- to me, inflation happened because corporations decided to raise rates when they know americans got money and that is what i believe about inflation. have a great day. guest: that is a great question. he is talking about what

economists refer to as the lags of policy. how do you know when you have done enough? it is a little like driving, but you cannot see through the front windshield, so you are looking through the rearview mirror. it is easy to drive off the road. why did the fed raise rates so quickly if they know it can be dangerous to do that? they did it because inflation was very high last year and interest rates were so low. you had good reason to think you needed to get a lot of stimulus out of the economy, you are not sure how much it would take to do that. they moved quickly, there were definitely risks involved. there were risks in not moving so quickly and letting inflation get out of control, it could be harder later if you do not deal with it now. that is what we saw in the 1970's. as for the question about how we ended up with inflation, whether it is because of companies taking advantage of strong demand, this will be debated for

decades. economists will study this episode. we do not have a great understanding of how inflation is caused. there are people who argue it is because of the labor market getting too hot and people bargaining for higher pay. what we had during the pandemic was different, we have supply and demand out of whack. especially 2021 when inflation started, people were raised to spend money. they've been cooped up in their homes and have not traveled. they traveled in the supply-side was not able to manage that. there were shortages of cars, you could not buy cars and everyone wanted to buy a car. bikes, planes. airlines were having terrible staffing shortages. what do you do if you have a lot of demand and cannot meet supply? do you have an auction, alphabetical order, do you raise prices? as demand comes down, airlines

have gotten more seats, flying more planes, car companies are making more cars and interest rates are slowing down demand, you are seeing prices come back down. host: wisconsin, good morning. tim, good morning. moving on to josephine in new jersey. caller: good morning. i am just curious, this is the bbc, and england, the interest rate went down to 8.9%, they thought it was glorious. what are we listening to, what does that mean? if it is 3% in the people think it is 15 or 20, perception is not reality. is it 3% or not? guest: there are different ways to measure inflation. economists look at core inflation a lot of times because

they think if you take out food and energy prices, it tends to better predict what underlying inflation or future inflation will be. that's been running closer to 4.5% for the last few months. it was 5.5 percent, 6%. it is coming down more slowly than headline inflation and the challenges if you allow it to go on for a while, people begin to think prices will be higher in the future. economists believe those expectations are important in determining what inflation will be. if you think prices will be higher a year from now, you will ask for more money. if you are a landlord, you will charge more rent. so there can be a self-fulfilling element to this. the idea is you want to come in and deal with inflation now. if it stays down near these levels, comes down to 3% and

stays there, that will be great news. but there is a risk it could go back up, especially if the reason it came down was due to volatile elements like energy prices. you see energy prices go up, a lot of the things we consumed are delivered to our doors with diesel trucks. you consume a lot of things that get to you with energy, so when prices go up, the fed will be more concerned about that after a period in which we had high inflation. host: linda is in michigan, good morning. caller: good morning. last year or perhaps the year before, inflation was up around 8%. it is down now, food prices have not go down. that does not make sense to me. a little while ago, they blamed bird flu for the reason eggs were so high. i know that was true, but when

the bird flu is gone, my eggs have not gone down. so is it price gouging by the food industry? guest: this is another really good question on inflation. inflation measures the growth of prices. sometimes people are talking about the price level, think about coffee. i used to pay two dollars for a cup of coffee. now they say inflation is low, but it is still four dollars. the growth in price is inflation. even if the price is not going up, it will not go back to two dollars. for that to happen, we would have to have declining prices. when people talk about inflation settling at 2%, the price will not go down. it is just not going to go up anymore. it will take time for people to get used to that.

some things may go back down, but not everything. when we talked about inflation rate, we are talking about changing the price level slowing down, growth is slowing but not declining. deflation is something central bankers try to avoid. it can be difficult to get out of deflation, it is something that scares them because if you think prices will be lower tomorrow, you do not spend today , then you go into a recession and it can be hard to get out of deflation. when the pandemic hit, that was a concern. we would have high unemployment for a long time, lower and lower prices. the fed and congress through a lot of money at this, put interest rates low to make sure we could get through the pandemic. the concern before the pandemic had been too little inflation, which seems crazy to think about

now that we have much higher inflation then we are used to. host: in pennsylvania, your question or comment. caller: one quick question. if we were energy independent, would we be able to control inflation better? host: let's take that. guest: you could, in theory. oil is controlled by opec, which is a cartel. if we were able to control energy supply, there is a prospect would be less reliant on the decisions other people make to control supply and demand. but even in the u.s., when refineries close, you can have domestic disturbances to supply and demand. but if we were able to rely more on other sources of energy, when opec changes air supply or production decisions, it might have less of an effect in the

u.s. host: real quick, shirley in pennsylvania. caller: i just have a quick comment. he made a reference -- many callers said the rich are getting richer and the poor are getting poorer, your guesstimated comment about people on fixed income and the effect it has. we do not have time to wait for that effect. we are going to lose our homes. as we approach 2024, the increase for social security, which affects disability as well , it is not going to be hardly any money. last year was the biggest increase, 8.7. these prices, i agree with everyone that called in. they did not go down and rent -- people like us, if we wanted to buy a house, we cannot begin to

afford it. host: i have to jump in, my apologies. guest: i think that covers a lot of this. inflation is not popular and we have learned that after a couple decades of not having much inflation. interest rates at a 22 year high, that is part of it. the fed is trying to make sure they've done enough to get on top of this and we do not have an episode like the 70's where they have to take interest rates even higher because they did not get top of it. host: what do you predict his next? guest: you tell me what is happening in the economy and i can tell you how the fed will respond. if the economy cools down, it is likely the fed will not have to raise interest rates again. but if inflation does not cooperate or the economy re-accelerates, the fed might do more. host: what economic indicators do you watch in the coming weeks before the fed gets back together? guest: the jobs report,

inflation report. tomorrow there is a wage growth report that the fed pays a lot of attention to. inflation and jobs, those are key. host: you can follow his reporting