A MARTÍNEZ, HOST:
With inflation now as high as it's been in nearly 40 years, the Federal Reserve is reconsidering its so-called easy money policies.
STEVE INSKEEP, HOST:
The central bank routinely signals what it's planning to do, and the policymakers expect to raise interest rates next year. They foresee rates climbing sooner and higher than previously planned because that's a major tool against inflation. So what's that mean for the economy?
MARTÍNEZ: NPR's chief economics correspondent Scott Horsley is here to explain. Scott, the Fed's been keeping interest rates near zero throughout the pandemic, effort to prop up the economy. But it sounds like there's been a significant shift in thinking at the central bank. What can you tell us about that?
SCOTT HORSLEY, BYLINE: That's right. Inflation has stayed higher for longer than many people at the Fed expected, and that's forcing Fed policymakers to think about really tapping the brakes next year. Most members of the Fed's rate-setting committee now expect at least three quarter-percentage-point interest rate hikes next year, and that's a substantial turnaround from September, when most members of the committee thought rates would stay near zero throughout 2022 or go up by, at most, a quarter percentage point. What's driving this shift, of course, is rising prices. Consumer prices in November were up 6.8% from a year ago. That's the steepest increase since 1982. And Fed Chairman Jerome Powell says the central bank can't let that level of price hikes continue unchecked.
(SOUNDBITE OF ARCHIVED RECORDING)
JEROME POWELL: We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation.
HORSLEY: Yesterday, the Fed announced that it plans to wind down its big bond-buying program by spring, a few months earlier than initially planned. And that timing's important because the central bank wants to end those bond purchases before it starts raising interest rates.
MARTÍNEZ: And Scott, one reason the Fed's been keeping interest rates so low is that it wants to promote more job growth. So what does this shift in policy mean for that?
HORSLEY: We're looking at a really unusual job market right now. Unemployment has come way down, but there's still about 4 million fewer people in jobs now than there were before the pandemic. And a lot of people who dropped out of the workforce during this time have not yet returned. Now, there are lots of reasons for that. Some people have retired. Some people are looking after kids. Powell says some are understandably worried about the pandemic, which is still killing more than a thousand people in this country every day.
(SOUNDBITE OF ARCHIVED RECORDING)
POWELL: What does the labor market look like in a world without COVID? That would be the thing that we'd really like to see. But, you know, it doesn't look like that's coming anytime soon.
HORSLEY: In the meantime, Powell says, the job market looks to be pretty tight, and that's why we're seeing pretty substantial wage increases. Of course, wage gains are generally good, but the Fed is on the lookout for any sign of the kind of wage price feedback loop that helped fuel runaway inflation back in the 1970s.
MARTÍNEZ: Now, the stock market seems to like what it's hearing from the Fed. What does this mean for the broader economy?
HORSLEY: Markets were relieved to see the Fed adopting a tougher line on inflation. The Dow jumped more than 380 points yesterday. You know, businesses don't necessarily like soaring prices any more than consumers do. Keep in mind, this is happening in the context of a really rapid economic recovery that was fueled in part by the Fed's easy money policies, along with trillions of dollars in federal spending. Now, those may have contributed to the current high inflation, but Powell says he's not second-guessing the rescue efforts of either Congress or the central bank.
(SOUNDBITE OF ARCHIVED RECORDING)
POWELL: We're coming out of the first really global modern pandemic, which looked at the beginning like it might cause a global depression, so we threw a lot of support at it. And what's coming out now is really strong growth, really strong demand, high incomes and all that kind of thing. People will judge in 25 years whether we overdid it or not.
HORSLEY: Of course, that judgment will depend a lot on what happens next. Fed forecasters do think inflation will settle down next year to around 2.5%.
MARTÍNEZ: NPR's Scott Horsley. Scott, thanks a lot.
HORSLEY: You're welcome.
(SOUNDBITE OF MUSIC)
MARTÍNEZ: It's taken less than three weeks since the omicron variant was first detected in the U.S. to spread to at least 36 states.
INSKEEP: Clearly, the variant is highly transmissible, as it was in other countries. The U.K. reported a record high number of new cases just yesterday. Health officials there describe omicron as the most serious threat since the start of the pandemic.
MARTÍNEZ: NPR's Allison Aubrey joins us with the latest. Allison, the CDC estimates about 3% of infections in the U.S. are now omicron. How quickly is it spreading?
ALLISON AUBREY, BYLINE: Very quickly, A - I mean, cases can double every two days. And what's happening in Houston, Texas, sheds light on just how quickly it could take over. The CEO of Houston Methodist Hospital, Marc Boom, told me they had had very low levels of COVID for a few months. But what he's seeing now changes the picture completely.
MARC BOOM: We've seen our positivity rates go from about 6% to 20%, so there's little doubt that once this is there and spreads, it spreads rapidly. I mean, this is replacing delta in our community at a rate we've never seen. And I would expect, you know, matter of weeks only before it is all that we're dealing with is omicron.
AUBREY: As of last night, 32% of positive sequenced there were omicron. And Dr. Boom says even if most cases are mild and only a small fraction lead to hospitalization, it could still be hard for hospitals to keep up.
MARTÍNEZ: You know, I saw a quick rise in cases reported on the campus of Cornell University in Ithaca, N.Y. What has the university done to control that spread?
AUBREY: The university's provost, Michael Kotlikoff, told me they first detected omicron cases on Sunday. The campus is 98% vaccinated, and almost all of the cases have occurred in fully vaccinated students.
MICHAEL KOTLIKOFF: We've been seeing a 50% rise in cases day over day.
AUBREY: Now, Cornell moved final exams online, canceled all social gatherings among undergraduates and told students they can go home.
MARTÍNEZ: As far as severity, what have they been seeing? Are students getting really sick?
AUBREY: There have been no hospitalizations. But remember, this is a young, healthy population. And Michael Kotlikoff says they are keeping tabs on the students who have been infected.
KOTLIKOFF: Almost all either asymptomatic or mild symptoms - the majority of students have been asymptomatic that have been detected, but we're isolating those students for 10 days.
AUBREY: Clearly, they don't want students to go home and spread it to more vulnerable family members or friends.
MARTÍNEZ: And in the U.K., health officials pointed to a big spike in cases yesterday as omicron spreads.
AUBREY: Yeah. Britain reported more than 78,000 new cases yesterday, a record high. The good news is that the new data shows a third vaccine shot, so a booster dose, is effective at protecting people against omicron. So Prime Minister Boris Johnson announced yesterday what he basically called a jab-athon (ph).
(SOUNDBITE OF ARCHIVED RECORDING)
PRIME MINISTER BORIS JOHNSON: We're jabbing in hospitals. We're jabbing in surgeries. We're jabbing in pharmacies and in pop-up centers. We're jabbing in shopping centers and on high streets, in football stadiums. We are throwing everything at it. And wherever you are, we'll be there with a jab for you.
AUBREY: So clearly, the message, A, is get a booster. And the Biden administration is making the same recommendation. If you are eligible, get a booster shot. It will help to shore up your protection and protect you against omicron.
MARTÍNEZ: If only jab-athon had been a "Star Wars" reference, that would be really...
AUBREY: (Laughter).
MARTÍNEZ: NPR's Allison Aubrey, thanks a lot.
AUBREY: Thank you, A.
(SOUNDBITE OF MUSIC)
MARTÍNEZ: It's been nearly a week since tornadoes tore through Kentucky and several other states, and the scope and scale of the damage is still really hard to wrap your head around.
INSKEEP: It's one thing to be a grownup and watch your home and neighborhood destroyed. Now consider what it's like if you had that experience as a kid. Alayah Pacheco is 8 and was with her grandmother when a tornado approached.
ALAYAH PACHECO: We were by the door. And then we had to go in the bathroom till we noticed that the roof had came off.
MARTÍNEZ: NPR's Brian Mann is back with us again from Kentucky. Brian, I understand that of the 74 people confirmed dead in this disaster, 12 were children, the youngest just 2 months old. And I got to imagine, this has to be traumatizing to kids who have lived through this and are still dealing with this.
BRIAN MANN, BYLINE: Yeah, that's right, A. This storm hit young people really hard. The Associated Press is reporting that on one single street in Bowling Green, Ky., seven children died. So it's just shattering. My colleague David Schaper and I have been out talking to some of these kids who survived the storm, what they experienced. These tornadoes caught them in the middle of the night in places where they're supposed to feel safest, you know, in their homes, in their bedrooms, so terrifying. This is Addison Heppner from Princeton, Ky. He's 14.
ADDISON HEPPNER: You could just hear the house shaking and, like, drywall, like, fragments were falling down from the roof of the basement. The wind just came through the house. It was very scary. There's not really words that you can put to say about it.
MANN: And I met Addison outside a hotel where his family is sheltering, their home severely damaged and without power. He said it's tough seeing his community torn apart, so he's actually been spending a lot of his days working on cleanup with his parents.
MARTÍNEZ: We're just only nine days away from Christmas. I mean, how hard is this on kids?
MANN: Yeah, this is really sad. Another child we met was 8-year-old Alayah Pacheco. She was with her grandmother, Beatriz Valero, in Mayfield when the wind tore their house apart.
ALAYAH: Yeah, the Christmas tree, I think, got sucked up with the presents.
BEATRIZ VALERO: We don't have no more presents (ph), right?
ALAYAH: Yeah. They're either in the pile or got sucked up.
MANN: And the pile is how Alayah describes what's left of their home. They're living with family now, but they don't have insurance, so rebuilding is going to be hard. Damage in Mayfield is really widespread. Whole neighborhoods, they're flattened. And it was heartbreaking to hear how that looked through Alayah's eyes.
One thing happening in Kentucky, which is wonderful, is a whole bunch of toy drives are underway, efforts to gather donations so these kids do get some kind of celebration, some kinds of gifts. Britainy Beshear, the first lady of Kentucky, she's actually leading the largest of those efforts, and they've had about 20,000 toys donated.
MARTÍNEZ: And Brian, I saw that President Biden visited there yesterday. What did he see and say?
MANN: You know, the president flew over the region in a helicopter, met with families and first responders and spoke about the terrible uncertainty that people here are facing.
(SOUNDBITE OF ARCHIVED RECORDING)
PRESIDENT JOE BIDEN: I met one couple on the way up, said they're still looking for four of their friends. They don't know where they are. And those who have lost someone, there's no words for the pain of losing someone. A lot of us know it. A lot of us understand it, especially around the holidays when everything's supposed to be happy and joyful.
MANN: So recognizing how tough this is - Biden did promise more aid for Kentucky. He committed the federal government to pay 100% of the initial costs of the cleanup for these communities through the first 30 days.
MARTÍNEZ: NPR's Brian Mann in Kentucky. Brian, thanks.
MANN: Thank you. Transcript provided by NPR, Copyright NPR.
