NO PAIN, NO GAIN — Fed Chair Jerome Powell would love to stop pumping the brakes on the economy with multiple, hefty interest rate hikes. He knows the aggressive boosting will almost certainly cause recession — potentially a bad one — and a significant spike in unemployment. And people will hate him for it, especially Democrats looking to retain power. He would rejoice if rampant inflation came down on its own without the steel-toed boot of the world's largest central bank stomping on its neck. "I wish there was a painless way," Powell lamented earlier this month. "There isn't." The Fed chief got no good news today with the latest reading on the core Personal Consumption Expenditures price index (our friend, PCE, which we've explained in this space before) rising faster than expected despite multiple rate hikes that now total 3 percent on the year, though the last one came in September so would not have impacted today's number. Core PCE, which excludes volatile food and energy prices, is the Fed's preferred metric for showing what prices are really doing across the economy. And at least through August what they were doing was rising. A lot. Across most of the economy. The figure jumped 0.6 for the month in August after being flat in July. And it rose to 4.9 percent over the same time last year, higher than the Wall Street consensus of 4.7 percent, which was the level for July. All of this means that while Fed hikes have driven up mortgage rates and slowed the housing sector they have yet to cool overall consumer demand or spending in a way that would bring inflation back to the central bank's target of around 2 percent per year. In other words: The Fed-delivered beatings will continue until morale improves. The central bank is expected to keep hiking through this year and next. And it won't stop until core inflation relents. So far, Powell and his colleagues have escaped heavy criticism, either from a White House worried about the midterms and 2024 or Democrats more broadly beyond comments from Sen. Elizabeth Warren (D-Mass.) who said she was "very worried" that all the hikes will cause a painful recession. This could change very soon. Some on the left who have backed up the Fed's rate hikes — including influential New York Times columnist Paul Krugman — are beginning to worry that the Fed could be going too far. After all, inflation expectations (what people think prices will do in the future) are pretty well in check, unlike the last bout of hyper-inflation in the late 1970s and early 1980s. And alternate, private sector readings on prices show many of them coming down. Fed policy operates with a famous lag, meaning they could be tipping us toward recession now but we won't know it for months when the increased cost of credit stalls business and consumer spending and the hot jobs market finally stalls out. And then there is the problem of synchronized global tightening . Other central banks are following the Fed's lead in tightening policy from the European Central Bank to the UK, Switzerland, the Philippines and beyond. Markets have flipped into turmoil with the Dow Jones now in bear market territory (a 20 percent drop from its recent high). Things got especially ugly in the UK after the new conservative government led by Prime Minister Liz Truss introduced giant tax cuts to juice the economy even as the country's central bank tries to cool off inflation with rate hikes. The directly opposed policies crushed the British pound and UK bonds (which they call "gilts.") The fear now is that all the global tightening might bring down prices while also sparking a global recession. It could also decimate emerging market countries whose debt is getting much more expensive. The Fed is obviously watching all this very closely. But for the moment, Powell and his colleagues have no plans to ease up on rate hikes until they see real, sustained movement down in the above-discussed core PCE, even if it means a painful recession that costs Democrats in the next couple elections. Because their biggest fear is sustained and potentially out-of-control inflation. But if the numbers do in fact drop and those who insist inflation has peaked prove correct, expect a very relieved Powell to quickly lift his foot off the brake pedal. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight's author at bwhite@politico.com or on Twitter at @morningmoneyben.
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