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Alright, so here's a thought. What if the Federal Reserve just can't do what it is trying to do?

From American public media, this is Marketplace.

In Los Angeles, I'm Kai Rizzo. It is Thursday. Today, March the 9th could as always to have you along everybody.

Alright, so here is the thing about this economy right now. Or, you know, one thing because it is a $20 trillion beast.

As we've been covering this week through Chair Jay Powell's testimony on Capitol Hill, the Federal Reserve has been trying really hard

to slow this economy down a bit. And yet, despite the central bank raising interest rates and talking the monetary policy talk, the labor market is still strong and inflation is still way far away from the 2% the Fed wants to see.

And so one might fairly ask whether the Fed's tools just aren't getting the job done. And if that's the case, then what?

We will ask those questions of Neil Irwin. He's the Chief Economic Correspondent at Axios. Neil, it's good to have you back.

Thanks, Kai. So what if I'm right? What? And it's not just me. There are other people saying this, including maybe a little bit you. What if monetary policy just isn't getting the job done now?

I think that's definitely what's happening. We have 50 year low in the unemployment rate, 3.4%. At a time the Fed's been doing everything they can for the last year to tighten the money supply.

It's clear there have been some shifts in the economy that just make their policies less effective than they used to be at adjusting how the economy works.

Lay that out for me. What are the changes? Well, less employment and less activities tied up in physical, durable goods. So the things that you borrow money for, a car or a house, are a smaller share of the economy relative to things that are services, going to restaurants, going to staying in hotels.

So that might mean that that interest rates are less effective. There's some other things in the structure of the financial system and how it works. Maybe businesses are lean inventories. They don't need as much credit. So raising rates doesn't affect how they behave.

You know, wealth inequality might be a factor. You know, when so much wealth is held by mega billionaires, maybe a situation where they're spending isn't as sensitive to what happens to asset prices as more middle class people.

A lot of theories, but the end result is we definitely have an economy that's still roaring ahead even as the Fed is trying to slow it.

Okay, so we've raised rate. The Fed has raised rates eight times in a year, give or take four plus percentage points. Do you suppose it's possible that given all the changes in the economy monetary policy just doesn't work anymore and J Pal in the gang need to find new ways to do things?

I mean, I think that's going too far for one thing. There are always lags and we may see these effects. There's some hints that have happening already. We may see these effects really start to bite as 2023 progresses.

And also you have to think a little bit and counterfactuals, right? So what would have happened if they had kept rates at zero all of last year?

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