The Fed Chair spoke and spooked the market yesterday, triggering fears that the U.S. central bank will raise interest rates higher — for longer — to fight inflation.

Jerome Powell told the Senate Banking Committee that “inflationary pressures are running higher” than was expected when the Fed last met and raised rates in February.

One reason there’s still so much inflationary pressure is that the economy keeps running hot.

It’s been a year since the Fed started raising interest rates to try and slow inflation driven by strong business and consumer demand. It seemed to be working: consumer spending, home sales, and price inflation all started to come down.

Then 2023 arrived — with a bang.

“January’s data was a surprise,” said former Fed economist Claudia Sahm. “Inflation strengthened some, we had big job gains, we had spending really bounce back.”

Chairman Powell is now reiterating that the Fed will do whatever it takes to slow the economy and tame the job market to fight inflation.

American workers, though, remain confident they’ll be able to keep their jobs and keep spending it up, said Jesse Wheeler at polling firm Morning Consult.

“The U.S. consumer remains incredibly resilient,” he said.

Tamping down consumer spending to blunt inflation has proven one of the hardest nuts for the Fed to crack.

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