Why the Fed is trapped by inflation

**SPEAKER_1** (0:00)
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**Loretta Mester** (0:21)
The conversation isn't gonna be around cutting, I don't think. I don't think they're gonna do anything about raising rates at the meeting coming up, but they have to have that conversation and start that conversation.

**Chris Bentley** (0:32)
With inflation roaring above 4%, don't expect lower interest rates anytime soon.
It's Wednesday, June 10th, and this is Here and Now Anytime from NPR and WBUR. I'm Chris Bentley. Today on the show, Social Security will start running out of money by 2032 unless Congress acts. But a former administrator of the agency in charge of the National Social Insurance Program says he's not optimistic about a big fix.

**Michael Astrue** (1:13)
The retirement fund is in trouble. I've come around to a different opinion from what I've expressed in the past that we need to do incremental change.

**Chris Bentley** (1:22)
Also, coming up in about 10 minutes, we'll preview the World Cup which kicks off Thursday.
But first, inflation has hit its highest point in over three years. A Labor Department report shows consumer prices in May were up 4.2 percent from a year ago, and much higher than before the US and Israel went to war with Iran.
You don't need me to tell you that prices are up. Gas prices in particular are up 40 percent since May 2025 But it's not just the gas tank. Tomatoes are up almost as much, 32 percent to give you just one example. Loretta Mester was head of the Federal Reserve Bank of Cleveland from 2014 to 2024 She told Scott Tong inflation is hurting consumers and not just at the gas pump.

**Loretta Mester** (2:14)
Well, I think it's a broader inflation story. It certainly is true that the surge in energy prices that we've seen since the Iran war started, certainly is adding to total inflation. But if you look at the other components, you also see that services prices, and when you take out food and energy prices, those measures, those so-called core measures, are also running pretty hot.
So I think it's a broader story than just tariff, and just the energy price surge. And it's been running high above the Fed's target, which is 2% for five years and counting now.

**Scott Tong** (2:53)
So for the American consumer, the American family, I mean, does it hit our list of must-buy things? Our utilities are up, gasoline, our food. In other words, is it hard to escape this inflation?

**Loretta Mester** (3:08)
I think it's very hard to escape it. And what's particularly hard about it is, if you look at lower-income households, and even medium-income households, if you look at what they spend their money on, of course, they don't have as much discretionary income. So they're really buying the essentials, food, energy, shelter.
And those prices have been moving up, especially food and energy, at much higher rates than perhaps other things in the basket. So it's hitting particularly hard those households who have the least wherewithal to handle it, which is why inflation is such a hard, it's a really painful, bad problem to have, and that's why the Fed needs to really be concerned about the continually running hot inflation numbers. Now, it is down from where it was post-pandemic.
We got it by Fed action, but we're at a point now where it's continuing to be high, and it's continuing to impact households. And yes, you look at, well, it's relative to their wages or wages going up. And it's only been very, very recently that you could say that wages have finally caught up to prices. But now, we have inflation rising again more than wages are rising. So that's gonna open up that gap again, where people are gonna find and really feel the burden of inflation.

**Scott Tong** (4:38)
Right, hard for paychecks, or they're not keeping up, as you say, with prices. Meantime, the job market seems somewhat solid, 170,000 new jobs in May. So does this increase the odds, you think, that the Federal Reserve will raise interest rates this year to cool down prices, because some market measures suggest the chance is going up?

**Loretta Mester** (5:01)
Well, they certainly have to change the conversation. Of course, before the war and we were getting some of the inflation numbers, the conversation was really about taking actions to sort of make sure that the labor market would stay stable and not deteriorate. And they did take some action. Now the conversation has to be, we've got to hold for a while, because inflation is our main problem.