How much power does the Fed really have?

**SPEAKER_1** (0:00)
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**Amy Scott** (0:32)
We're going to take a little road trip through the Southwest today, with pit stops in New Mexico and Arizona. But first, let's fill the tank with some data, shall we? From American Public Media, this is Marketplace.
In Denver, I'm Amy Scott in Forkive Rizdal. It's Wednesday, August 26th. Good to have you with us.
Inflation, as measured by the PCE, or Personal Consumption Expenditures Price Index, is still too dang high. That's the latest from the Commerce Department. Well, not in so many words, but the headline is that prices were 3.7% higher in July from the year before. As you hear us say all the time, the PCE is the one the Fed is really paying attention to, and it's been well above the Central Bank's 2% target for more than five years now. Marketplace's Nancy Marshall Genzer takes a look at why the inflation we're seeing now is proving so hard to contain.

**Nancy Marshall Genzer** (1:39)
We found out today that core PCE, which strips out volatile food and energy prices, it hit an annual rate of 3.3% in July. And the thing about the inflation plaguing us right now, it's caused by things that are out of the Fed's control. Danielle DiMartino Booth is CEO and founder of QI Research.

**Danielle DiMartino Booth** (1:59)
They cannot influence the war in Iran. They cannot influence what's happening in the Strait of Hormuz. They cannot influence commodity prices, and they cannot influence prices that are driven upwards by tariffs.

**Nancy Marshall Genzer** (2:10)
DiMartino Booth says it's not like the Fed can pump more oil or do away with the tariffs.

**Danielle DiMartino Booth** (2:16)
It's a supply chain-driven situation that the Fed cannot influence.

**Nancy Marshall Genzer** (2:22)
Fed officials' tools only work when demand is the problem, and they can raise interest rates to make borrowing more expensive, dampen demand, and cool off the economy. That would not be so effective now. Still, Fed Chair Kevin Worse keeps insisting inflation will get back to the Fed's target of 32 percent.
Olu Sinola, head of US Economics at Fitch Ratings, says at this point, The Fed can only hope that they can talk this inflation down, they can signal this inflation down, but they also recognize that the tool they have is quite blunt. And the worst part is Fed officials don't know how long they'll be in this pickle.

**Gary Hoover** (3:02)
I see the Fed as being in a really tough spot right now.

**Nancy Marshall Genzer** (3:06)
Gary Hoover teaches economics at Tulane University. He says the Fed works best when it knows what to expect next, but...

**Gary Hoover** (3:15)
The all-again, off-again nature of some of the issues that the Fed is facing leaves them really conflicted and not certain on how to proceed.

**Nancy Marshall Genzer** (3:28)
Hoover says the last thing Fed officials want to do is change interest rates, then realize that oops, they need to hit reverse. I'm Nancy Marshall Gensler for Marketplace.

**Amy Scott** (3:38)
Wall Street today, barely budged actually. We'll have the details when we do the numbers.
Let's go. For some reason, consumer confidence slipped again this month. We learned yesterday the Conference Board's Consumer Confidence Index slid to its lowest level since January. People were especially gloomy looking six months ahead. We'll get another take from the University of Michigan's Consumer Sentiment Survey on Friday. But as we know, how we feel about the economy doesn't always show up in how we spend. Marketplace's Kaylee Wells looked at how the general mood is shaping behavior.
It makes sense that consumers keep feeling worse and worse, says Eric Hurst. He teaches economics at the University of Chicago.

**Eric Hurst** (4:47)
We see this link between high inflation, declining real wages, and declining consumer confidence.

**Amy Scott** (4:53)
Hurst says, like most workers he studied, his salary has increased slower than the rate of inflation, which means he can buy less today than he could a year ago or two years ago.

**Eric Hurst** (5:04)
And as we saw for the last few years, when real wages eroded, consumer confidence tends to erode with it.

**Amy Scott** (5:10)