So the Fed can keep interest rates higher for longer to cool price rises — although the central bank also has room to cut should the labor market "unexpectedly weaken," Powell added.
Related storyHigher interest rates make borrowing more expensive for anything from mortgages to credit cards — it encourages people to save rather than spend, which in theory, helps bring down prices.
AdvertisementConversely, lower interest rates encourage borrowing and spending — thus driving the economy when growth slows, such as during the COVID-19 pandemic when the Fed cut rates massively and pumped money into the system.
But Reid thinks the excess money could be drained from the economy later this year, when money supply in the economy normalizes.
AdvertisementDemand, supply chain snarls, and fiscal stimulus also contribute to inflationTo be sure, money supply isn't the only thing that contributes to inflation.
Persons:
—, Jerome Powell, Powell, Jim Reid, it's, Reid, Bill Dudley
Organizations:
Service, Wilson Center, Business, Fed, Deutsche Bank, Federal Reserve, Bloomberg
Locations:
Washington, New York, Dudley