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Jackson Hole: Powell signals additional rate hikes may be necessary to maintain strong economy
The continued strength of the U.S. economy could require further interest rate increases, Federal Reserve Chair Jerome Powell said Friday in a closely watched speech that also highlighted the uncertain nature of the economic outlook.
Powell noted that the economy has been growing faster than expected and that consumers have kept spending briskly — trends that could keep inflation pressures high. He also reiterated the Fed’s determination to keep its key rate elevated until price increases are reduced to the central bank’s 2% target.
“We are attentive to signs that the economy may not be cooling as expected,” the Fed chair said. “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
Stocks are holding on to gains after Fed Chair said more rate hikes could be on the way. The S&P 500 was up 0.4% Friday morning, coming off its worst loss in three weeks. The Dow was up 101 points and the Nasdaq composite was up 0.7%.
His speech — at an annual conference of central bankers — highlighted the uncertainties surrounding the economy and the complexity of the Fed’s response to it. That marked a sharp contrast to his remarks from Jackson Hole a year ago, when he bluntly warned Wall Street that the central bank was going to continue its campaign of sharp rate hikes to rein in spiking prices.
“The key message is this is a speech of patience,” Morgan Stanley analysts said in a research report. “There is still plenty of time to watch the incoming data and Powell thinks policy is already very restrictive. As such, they need time to decide whether to hike higher or just keep rates higher for longer.”
“There is always uncertainty”
Powell also said the Fed believes its key rate is high enough to restrain the economy and cool growth, hiring and inflation. But he said it is hard to know how high borrowing costs have to be to restrain the economy, “and thus there is always uncertainty” about how effectively the Fed’s policies are in reducing inflation.
As a result, the Fed “will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data,” Powell said.
“There were no revelations from Fed Chair Jerome Powell’s widely anticipated speech in Jackson Hole, just a reaffirming that the Fed is squarely focused on getting inflation down to 2% and they intend to see the job through,” Greg McBride, CFA and chief financial analyst at Bankrate.com, noted in a report.
Since Powell spoke at last summer’s Jackson Hole conference, the Fed has raised its benchmark rate to a 22-year high of 5.4%. From a peak of 9.1% in June 2022, inflation has slowed to 3.2%, though still above the Fed’s 2% target.
Powell acknowledged the decline in inflation from its peak, which he called “very good news.” And consumer prices, excluding the volatile food and energy categories, have also begun to ease.
“Although inflation has moved down from its peak — a welcome development — it remains too high. We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he added.
Substantially higher loan rates, a direct result of the Fed’s rate hikes, have made it harder for Americans to afford a home or a car or for businesses to finance expansions. At the same time, items like rent, restaurant meals and other services are still getting costlier. “Core” inflation, which excludes volatile food and energy prices, has remained elevated despite the Fed’s streak of 11 rate hikes beginning in March 2022.
Rising optimism as economy powers ahead
The overall economy has nevertheless powered ahead. Hiring has remained healthy, confounding economists who had forecast that the spike in rates would cause widespread layoffs and a recession. Consumer spending keeps growing at a healthy rate. And the U.S. unemployment rate stands exactly where it did when Powell spoke last year: 3.5%, barely above a half-century low.
In June, when the Fed’s 18 policymakers last issued their quarterly projections, they predicted that they would raise rates once more this year. That expectation might have changed, though, in light of milder inflation readings the government has issued in recent weeks. The officials will update their interest rate projections when they next meet September 19-20.
Many economists have postponed or reversed their earlier forecasts for a U.S. recession. Optimism that the Fed will pull off a difficult “soft landing” — in which it would manage to reduce inflation to its target level without causing a steep recession — has risen.
Many traders in the financial markets envision not only a soft landing but an acceleration of growth. Those expectations have helped fuel a surge in bond yields, notably for the 10-year Treasury note, which heavily influences long-term mortgage rates. Accordingly, the average fixed rate on a 30-year mortgage has reached 7.23%, the highest level in 22 years. Auto loans and credit card rates have also shot higher and could weaken borrowing and consumer spending, the lifeblood of the economy.
Some economists say those higher long-term rates might lessen the need for further Fed hikes because by slowing growth, they should help cool inflation pressures. Indeed, many economists say they think the Fed’s July rate increase will prove to be its last.
Even if the Fed imposes no further hikes, it may feel compelled to keep its benchmark rate elevated well into future to try to contain inflation. This would introduce a new threat: Keeping interest rates at high levels indefinitely would risk weakening the economy so much as to trigger a downturn. It could also endanger many banks by reducing the value of bonds they own, a dynamic that helped cause the collapse of Silicon Valley Bank and two other large lenders last spring.
Still, the longer the economy chugs ahead, the more it suggests that growth is sustainable. It also raises the tantalizing possibility that the post-pandemic economy has shifted to a higher gear and can expand even with elevated borrowing costs.
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California voters will soon decide on a high-profile ballot measure that would increase penalties for certain drug and theft crimes.
Last week, CBS News California took a closer look at the drug component of Proposition 36 — also known as The Homeless, Drug Addiction and Theft Reduction Act.
Here, we examine whether retail theft is really on the rise in California and whether the tough-on-crime Proposition 36 would actually help.
Are California retail crime rates up? Yes and no.
We analyzed data from the California Department of Justice (DOJ), which shows that statewide retail crime — which includes shoplifting, commercial robberies and burglaries, and organized retail theft — reached its highest levels in two decades in 2023, with about 213,000 reported incidents.
Shoplifting and commercial robbery in 2023 were both at their highest levels since 1997 — however, there were nearly seven times the number of shoplifting incidents than there were robberies. In 2023, the number of reported non-residential burglaries was slightly higher than in pre-pandemic years but lower than levels seen during the pandemic.
Statewide, reported shoplifting crimes increased by about 2% from the five years before another controversial ballot measure was passed by California voters to the five years after. Passed in 2014, Proposition 47 made hard drug possession and theft under $950 misdemeanors instead of felonies.
In 2015, immediately after Proposition 47 was passed, there was a 12% increase in statewide shoplifting, but those numbers ended up decreasing in the years after.
In 2023, reported shoplifting statewide rose 26% from 2019 levels. However, last year’s numbers for both shoplifting and overall retail crime were far lower than those of the 1980s and 1990s, and the trends vary from county to county.
Compared to pre-pandemic (2015-2019) averages, about half of California counties saw an increase in shoplifting in 2023, while the other half saw a decrease, according to state crime data.
There were significant jumps in many larger, more populated counties, but some large counties saw decreases.
According to a Public Policy Institute of California (PPIC) study of data from the DOJ, a statewide increase in overall retail theft between 2019-2023 was mostly driven by “11 of the state’s 15 most populous counties but generally decreased in smaller counties.”
For instance, the PPIC study shows that rises in retail crime in Sacramento County, Alameda County, San Mateo County and Los Angeles County during those five years accounted for more than 90% of the statewide increase over that time.
Property crime in California, which includes all robberies, burglaries, and thefts regardless of location jumped above the national average for the first time in 2015 and saw a gradual decrease afterward, state and federal crime data show.
However, the statewide property crime rate has remained above the national average ever since that jump and has separated from the national average more after the pandemic when many countries relaxed criminal justice policies even more.
“We had individuals in our city who were arrested or cited over 15, 20, 25 times in a period of 24 months,” San Jose Mayor Matt Mahan said. “That culture of a lack of accountability really started to take root.”
Why is retail crime up? That depends on who you ask.
Mahan and Sacramento County District Attorney Thien Ho are among a growing number of high-profile elected Democrats who support Proposition 36.
“I think it cuts to the core of the cycle of serious addiction and retail theft and unsheltered homelessness,” Mahan said.
Ho and Mahan took us to a homeless encampment along the Guadalupe River in downtown San Jose, across from a Target shopping center. They described the area as a microcosm of the need for voters to pass the high-profile ballot measure. That is where we met a homeless man named Richard.
“Some people that have a drug problem, they choose to go steal something,” he said.
Richard said it’s not uncommon for some of his unhoused neighbors to steal from nearby stores. Whether they get cited for shoplifting, drug use, or unauthorized camping, he said repeat misdemeanor tickets are not a deterrent.
“I’m going to keep getting tickets and keep getting tickets,” he said.
Supporters of Proposition 36 say the ballot measure is needed to fix the unintended consequences of Proposition 47.
“We took away tools to intervene in cycles of addiction that have an interplay with retail theft, with unsheltered homelessness,” Mahan said.
Ho noted that misdemeanor petty theft is a cite-and-release offense, which means even repeat offenders generally walk away with a notice to appear in court.
“We have in Sacramento over 30,000 bench warrants for people that never even show up,” Ho said, echoing what Sacramento County Sheriff Jim Cooper said at a Senate Standing Committee on Public Safety hearing in September.
While the first two offenses under Proposition 36 would remain misdemeanors, the ballot measure would make a third conviction a felony.
The No on Proposition 36 campaign points to a decrease in theft clearance rates — arrests for reported crimes — as a key factor in the rise of the statewide retail crime rate.
Simply put, critics like Cristine Soto DeBerry — who wrote the opposition argument to Proposition 36 — argue that theft is up because “no one is being arrested.”
Our CBS News California analysis of state crime data found that clearance rates dropped after Proposition 47 passed.
The statewide clearance rate for thefts was about 8% in 2023, according to DOJ data. Clearance rates for theft peaked at more than 20% in 1990 and declined steadily until about 2000, where rates hovered around 14-16% until 2014, when Proposition 47 was passed.
Theft clearance rates then dropped after 2014 and then dropped again to an all-time low of 6% during the pandemic. They’ve been slightly increasing since.
However, just like the retail crime, clearance rates vary by county, and more counties saw a drop after the COVID-19 pandemic than after the passing of Proposition 47.
Soto DeBerry pointed to law enforcement claims that they often can’t respond to reports of theft due to understaffing. She argues that Proposition 36 won’t change that.
“What deters people from committing crime is the belief that they will get caught. That’s it,” Soto DeBerry said.
Supporters of Proposition 36 say that repeat offenders will face a so-called “wobbler,” which can be charged as either a misdemeanor or a felony. They argue that under Proposition 36, repeat offenders would be more likely to be held in jail until they see a judge, which would incentivize officers to make an arrest and create a greater deterrent for serial thieves.
Proposition 47 or the COVID-19 pandemic?
The struggle to pinpoint the cause of the recent increase in retail crime isn’t only figuring out if it was due to lesser consequences or a lower chance of getting caught. There’s also the challenge of pinpointing changes during different time frames.
For example, a PPIC study examining crime after Prop 47 and the pandemic found evidence that the COVID-19 pandemic might have had a stronger impact on retail crime than Proposition 47 and that clearance rates are more closely tied to retail crime increases than jail or prison.
The study found that while jail and prison populations have dropped by a total of 30%, “the impact on crime has been modest and limited.”
Lower incarceration as a result of Proposition 47 likely only contributed to a roughly 4% rise in auto thefts and car break-ins (neither of which are retail crimes). Meanwhile, Proposition 47 clearance rates led to a 3% rise in burglaries, a 2% rise in auto thefts and a 1% rise in thefts.
However, the study found that when jail populations and burglary clearance rates fell during the pandemic, “commercial burglaries rose by a combined 5.3%, representing roughly one-third of the increase observed over that time. Some weak evidence also points to a 2021 rise in commercial burglaries tied to low clearance rates.”
The study did not include the increase in 2023 and it acknowledged that retail crime data is messy and not always complete. Some stores may be reporting fewer thefts to law enforcement, while others may be reporting more.
“Given the lack of data that accurately, completely, consistently, and credibly captures retail theft incidents, it is impossible to reliably assess the role of Prop 47 on retail theft,” the study read.
One grocery store worker we spoke with, who we’ll call Laura, is just one of many on the front lines of what has become a constant and well-publicized retail theft battle in the nation’s most populous state.
We agreed to conceal Laura’s true identity to protect her job. She said felt compelled to speak out on behalf of her coworkers, showing us videos of repeated thefts in her store.
“They know if the police even come, they’re just taken off the property, they turn right back around and come back,” she said of offenders.
Laura added that viral retail theft videos like these don’t show the reality of retail theft.
Many stores forbid employees from stopping shoplifters and, in some cases, fire employees who do, like this Safeway employee in the San Francisco Bay Area.
“Everybody knows that we can’t touch them,” Laura said.
Laura added that workers can’t report every theft, and when they do call the cops, thieves are often long gone before law enforcement arrives.
“It’s not just homeless and the drug addicts,” she said. “It is people coming in Teslas, walking out with carts full of groceries.”
Even California Gov. Gavin Newsom has witnessed retail theft. He described to a group of California mayors on a Zoom call how a Target clerk blamed him for the rash of retail theft after the governor witnessed the incident.
The governor was a proponent of Proposition 47 and is now against Proposition 36.
In August, Newsom signed a bill package into law targeting organized retail theft and property crimes. This package featured harsher punishments targeting repeat offenders. In September, Newsom signed another bill specifically targeting smash-and-grab robberies, mandating harsher sentences for incidents that result in major theft and damages.
Laura hopes that stiffer penalties under the governor’s bill package and Proposition 36 will incentivize officers to make more arrests and deter would-be thieves. She said that while it may not put an end to all retail theft, “we have got to do something.”
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