As inflation continues to rise and affect the economy, the Fed must look for a way to counter it while keeping prices stable. Powell and the Fed have been working diligently to address the various concerns of the economy, but as prices continue to increase there will be no simple quick fix. The clear option for countering the record-high inflation we are currently facing is to increase the interest rates, but there are various outcomes that could arise from doing so. If the Fed raises the interest rates too much and too quickly then we could see our economy enter another recession. If interest rates are raised too little, then inflation will continue to wreak havoc on our economy and force higher prices.
Fed Chairman, Jerome Powell, has ensured that increasing the interest rates will not be like what happened in 2015 when the central bank waited nearly a year to raise interest rates after the first increase. Powell plans to instead take a gradual approach when raising interest rates and may raise them at each of the remaining Fed meetings this year.
As for other aspects of the economy, such as unemployment, officials believe there may be some obstacles. As firms are excepting more and more employees back, many have chosen not to return. This is due to many workers demanding higher pay and incentives in order to keep up with rising prices and expenses. As the economy continues to open up it will be interesting to see how the Fed will implement changes in order to tame the high growth and inflation.
Source: https://www.washingtonpost.com/us-policy/2022/01/30/fed-powell-rates-economy/
Gradually increasing the interest rates seems to be the best option moving forward. As the inflation rate is continuing to increase and and consumer spending has remained stagnant. A sudden increase in interest rates may negatively affect the recovering economic, therefore, a gradual increase in interest rates is the best approach.
ReplyDeleteThe Fed's plan, as stated, does sound like the best course of action to take right now. Towards the middle of last year I would've been against any rise in the interest rate because the associated risks outweighed the rising inflation rate. However, the economy seems to be in a certain window of time where something needs to be done about inflation and a slight increase in interest rates won't cause any dramatic damage. I think the overall problem here is that we're still unsure how much longer or how severe the pandemic will be moving forward, so any long term plans could very easily be thrown off track.Unfortunately that's the risk the Fed is going to have to take because letting interest rates stay this low for too much longer is going to make inflation far worse than it currently is.
ReplyDeleteI think that the Fed should increase interest rates a little bit at a time to avoid a potential recession. It is smart of the Fed Chairman to ease concerns about increasing interest rates to ensure that the public feels more confident in the Fed to avoid what happened in 2015.
ReplyDeleteI think the Fed should take swift action to bring inflation down, and not wait like it did in 2015 because that might lead to a recession. If the Fed's actions are gradual people will be expecting it which can combat the drawbacks of increased interest rates such as a decrease in borrowing money.
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