The Federal Reserve raised interest rates Wednesday for the first time since 2023.
There will be much discussion about what this means for the economy. There should be.
But there is another question, less technical and perhaps more important as we approach the midterms.
What does it mean to the people living in the economy?
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The Fed sees an economy strong enough to withstand higher rates. Growth is solid. Consumers are still spending. Businesses are investing. The labor market is holding up.
These are good things.
And yet there is something strange about the word economists keep using to describe the American consumer.
Resilient.
Americans have certainly been that.
They have absorbed years of higher prices. They have adjusted household budgets. They have postponed purchases. They have watched mortgage rates make houses they once could afford suddenly unaffordable. They have put more on credit cards and paid more interest for the privilege.
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And they have kept going.
But perhaps we’re asking too much of the word “resilient.”
A family can be resilient because it is thriving.
It can also be resilient because it has no choice.
A consumer can keep spending while putting more on a credit card.
A small business can keep its doors open while canceling the expansion it hoped to finance.
The spreadsheet calls that resilience.
The voter may call it exhaustion.
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There comes a point when people don’t want to hear that they’re weathering the storm remarkably well.
They want the storm to end.
That is the part of Wednesday’s decision Washington should be thinking about.
The Federal Reserve raised rates because inflation remains too high. Higher interest rates are meant to slow demand. Borrowing becomes more expensive. People spend less. Businesses invest less. The economy cools and, eventually, inflation should cool with it.
This is sound economic theory.
It is also someone’s life.
A small-business owner who was thinking about expanding now looks again at the cost of the loan.
A young couple thinking about buying their first home runs the mortgage calculation one more time.
A family that hasn’t paid off its credit card watches another month’s interest accumulate.
None of them thinks: Monetary policy is working.
They think:
This is getting harder.
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And there is another complication.
Some of today’s inflation pressure isn’t simply a story of Americans buying too much. Energy prices have surged amid geopolitical turmoil. Tariffs have added pressure to some goods prices. Supply matters, too.
The Fed has a powerful tool for suppressing demand.
It does not have a tool for producing oil.
That distinction becomes important when the cure for higher prices is making money itself more expensive.
Economist Mitch Roschelle put the larger dilemma this way: Monetary policy can suppress demand, but it cannot manufacture supply. The policies Washington says will eventually increase supply may take years to bear fruit. Voters aren’t living years from now. They’re voting this November, after the Federal Reserve has just delivered an unmistakable message: Inflation is still a problem.
That leaves the consumer caught in the middle.
The policies that might increase supply take time.
The interest-rate hike designed to suppress demand does not.
Its effects begin showing up in the cost of money now.
And that may be the essential disconnect of this economy.
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Washington lives in the eventually. Consumers live in the now.
Washington can debate whether today’s inflation began with pandemic spending, the Inflation Reduction Act, tariffs, oil prices, the war in the Middle East, consumer demand or some complicated combination of all of them.
Voters don’t have to settle that argument.
They know what a gallon of gas costs.
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They know what they spent at the grocery store last Saturday.
They know whether their credit-card balance is bigger than it was a year ago.
They know whether the house they hoped to buy still feels possible.
And they know whether they feel as if they are getting ahead or falling behind.
That is why economic statistics and economic sentiment can tell such different stories.
The statistics measure the economy.
People measure their lives.
There is, inevitably, a political dimension to all of this.
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President Trump has repeatedly called for lower interest rates. On Wednesday, the independent Federal Reserve looked at the economy and concluded that rates needed to go higher.
Democrats will point to that decision as evidence that inflation remains a problem on Trump’s watch. Republicans will point to energy prices, geopolitical turmoil and other forces beyond the president’s control.
Both arguments will be made loudly.
But voters may hear something simpler.
The president has said prices are coming under control.
The Federal Reserve just said inflation remains elevated and raised interest rates to fight it.
That doesn’t tell us who caused inflation.
It tells us inflation isn’t over.
And politically, that may be the more important distinction.
Because Washington thinks about causation.
People think about experience.
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There is an echo here of the 1970s, although history is never as neat as politicians would like it to be. Then, too, oil shocks collided with an inflation problem already underway. Paul Volcker ultimately broke entrenched inflation with extraordinarily aggressive monetary tightening, at enormous economic cost.
We are not living through the 1970s again.
But history sometimes asks familiar questions.
What happens when part of your inflation problem comes from things monetary policy cannot fix?
And what happens when the cure lands on people who already feel they have been taking the medicine for years?
That is why Wednesday’s Fed decision matters beyond the markets.
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Politicians will argue about causation.
Economists will allocate responsibility.
Voters get to ask two considerably simpler questions:
How am I doing?
And:
Who’s in charge?
The Fed thinks the economy can take the medicine.
The question for November is how Americans feel after swallowing it.
