Fed officials are warning of more pain. Many Americans are already feeling it

By Elisabeth Buchwald, CNN

(CNN) — Four years ago, with inflation at multi-decade highs, then-Federal Reserve Chair Jerome Powell delivered a blunt message to Americans: Getting inflation under control would come at a cost.

The Fed needed to act “forcefully,” Powell told attendees at a key central banker conference that August. Doing so, he cautioned, would bring “some pain” for consumers.

Now, with the Fed back to raising interest rates for the first time in three years, a familiar warning about the economic fallout is resurfacing.

Inflation across the country is being driven primarily by fuel prices, which have skyrocketed since the war with Iran broke out in February. The Fed has little control over oil production, but by raising interest rates, it is seeking to prevent higher energy costs from spilling over into other parts of the economy and fueling broader inflation.

While this type of supply-driven inflation may be easier to bring under control than the post-pandemic demand-driven inflation, “it won’t be painless either,” Chicago Fed President Austan Goolsbee said last month.

For central bankers, the challenge is balancing two competing priorities: keeping inflation in check and preserving a healthy labor market. When price increases become too rapid, the Fed typically raises interest rates, making borrowing more expensive for consumers and businesses. That, in turn, can curb spending and cool demand, easing pressure on prices.

But that slowdown can come at a cost to workers, often leading to weaker hiring, fewer job openings, and, in some cases, job losses, as businesses struggle with higher borrowing costs.

“Inflation is the disease. And now the Fed comes with a cure: higher interest rates,” Beth Ann Bovino, chief economist at US Bank, said. “I don’t know which is more painful because they both hurt.”

Consumer spending accounts for roughly two-thirds of US economic activity, making it a key driver of growth. If Americans pull back — either because prices are eating up more of their budgets or because higher borrowing costs force them to set aside more money for expenses such as a home purchase — the economy could slow. In a worst-case scenario, that pullback could help tip the economy into a recession, Bovino told CNN.

For now, though, economic pain isn’t being felt equally. Americans with substantial investments in the stock market, which is hovering near record highs, may be doing just fine. Those who rely more heavily on their paychecks to cover everyday expenses have less of a cushion against rising prices.

“Those are the people being hurt,” she said.

Patience is a virtue — until it isn’t

With the risks of higher interest rates in mind, a growing chorus of Fed officials have recently been advocating for a more patient approach as they tackle the issue of inflation. Rather than trying to get a head start at fighting the potential for more or broader-based inflation, several central bankers have said they’d like more time to observe how economic conditions evolve to get a better idea of how many more rate hikes, if any, are needed.

“There is no need for urgency,” New York Fed President John Williams said last month.

Fed Vice Chair Philip Jefferson echoed that sentiment. “Any future adjustments in policy should be determined by carefully examining trends in the data, the evolving outlook and the balance of risks,” he said earlier this month.

But waiting to act carries risks of its own. With the Fed’s preferred inflation gauge more than a percentage point above its 2% annual target, Cleveland Fed President Beth Hammack warned that delaying action could make the fight against inflation even more painful.

“The longer inflation stays above our objective, the harder it will be for us to bring it back down, and the more pain that individuals and businesses are going to be experiencing,” Hammack said in an August CNBC interview.

For the Fed, the challenge is figuring out how much pain the economy can withstand — and which risk is worse: acting too soon or waiting too long. Either way, consumers are likely to pay the price.

The September Consumer Price Index report due Wednesday may give officials some valuable clues.

The-CNN-Wire
™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.