Axios Macro

The overriding message out of the Fed's communications yesterday was a simple one: Its leaders believe that some meaningful economic pain is necessary to bring inflation down, and they are willing to impose it.

• It is a contrast with just three months ago, when the policymakers clung to a more optimistic story in which inflation resolves itself with a mere bumpy patch for the economy.

Why it matters: The Fed is now forecasting a meaningful rise in unemployment over the next year as it pushes interest rates to their highest levels since 2007 — which implies that it will not only tolerate a recession or near-recession, but see it as evidence of success.

• "We have got to get inflation behind us," chair Jerome Powell said in his news conference. "I wish there were a painless way to do that. There isn't."

The big picture: What matters most for both the economic and political outlook is who will feel that pain, and how. Already, some on the left are assailing the Fed for throwing workers under the bus in its inflation-fighting campaign.

• Perhaps most prominently, Sen. Elizabeth Warren (D-Mass.) tweeted yesterday that she's "been warning that Chair Powell's Fed would throw millions of Americans out of work — and I fear he's already on the path to doing so."
• If yesterday's projections prove accurate — meaning a 4.4% unemployment rate late next year, up from a low of 3.5% in July — that would imply another 1.5 million Americans unemployed.
• Hypothetically, unemployment could rise that much due to a mere soft patch in the economy. But in practice, historical examples of that playing out are scarce. Unemployment only rises that much in recessions.

There's no doubt that in this scenario, moderately higher unemployment is, in fact, a goal of the Fed, with all the moral and political consequences that implies. But it goes too far to say workers bear the entire brunt of the war on inflation.

• Tighter money from the Fed has its first-order effects through financial markets, as witnessed in the S&P 500's 21% collapse this year.
• Indeed, if you believe, as many people do, that the era of zero interest rates and quantitative easing made the rich richer and increased inequality, then the era of rate hikes and quantitative tightening ought to have the reverse effect.

There are many channels through which the Fed tightening can help bring down demand and inflation without people losing their jobs.

• For example: An affluent investor decides they can't afford a vacation home because of stock market losses. Or a business accepts lower profit margins because it believes it can't raise prices in a slump.

Reality check: But just because those channels exist doesn't mean job losses won't be the most salient in how people experience the economy.

The bottom line: The 1.5 million people who may lose their jobs in the Fed's scenario will experience a lot more pain than the tens of millions who experience a moderately lower balance in their investment portfolio.

Yesterday was a big day for monetary policy in the U.S. Today, it's Europe's turn. A number of central banks announced historically huge interest rate increases — including one that became the last in Europe to officially do away with negative interest rate policy.

Why it matters: It's part of an aggressive — and simultaneous — global shift toward tighter monetary policy as most central banks rush to contain rising inflation.

Here's a rundown:

• 🇬🇧 The Bank of England delivered a half-point rate hike, the second consecutive increase of that magnitude as concerns about the U.K. economy grow. Notably, officials said government measures to cap energy costs would "likely limit significantly" increases in inflation.
• 🇳🇴 The Norges Bank also implemented a half-point increase. It signaled that smaller hikes were probably ahead.
• 🇨🇭 Switzerland's National Bank said it would raise interest rates by 0.75 percentage points. The move brings its policy rate to 0.5%, ending its years-long experiment with negative rates.

Yes, but: Stunningly, Turkey — facing an annual inflation rate of 80% and a currency crisis — today cut interest rates by a full percentage point, following a similar move last month.