Inflation has threatened the U.S. economy by driving the cost of living and overall prices up at an alarming rate and it has caused the Federal Reserve to consider raising interest rates for the first time in three years to fight against inflation. Most central bank officials are in favor of rising interest rates. There are also economists that are concerned that the FED has been acting too late to combat/prevent high inflation rates while others believe the FED could possibly be acting too aggressively. Many economists argue that the interest rate hikes can cause the economy to dive into a recession due to borrowing being more expensive for consumers and businesses which causes the economy as a whole to slow down. The speculation of interest rates possibly rising has caused a huge sell off (correction) in the stock market to occur. Specifically, the S&P has been hurt very hard causing people to become bearish about the future. Hawks and Doves normally disagree with their stance on interest rates, but the Doves have started to favor higher interest rates due to the situations we are under with our economy. Economist Mary Daly states “I definitely see rate increases coming, as early as March, even,” Daly said in an interview with PBS. “Because it really is clear that prices have been uncomfortably high.”
Interest rates have played a big role in the problems and solutions of the economy. The low interest rates that we have had during the pandemic have caused consumers and businesses to take out more loans and use them to invest and grow their wealth. Low interest rates and the stimulus checks jump started the economy because they contribute to an increase in spending and GDP. But, the growing circulating supply of money has caused inflation to rise at an alarming rate. The FED’s possible decision to raise interest rates, however, can slow down the inflation rate, but hurt the production of the economy which will lower GDP. Relatively less money is in the economy when interest rates are risen which limits spending. Overall, an increase in interest rates can possibly cause the U.S. economy to be negatively affected even though inflation could possibly be contained.
https://www.pbs.org/newshour/economy/federal-reserve-expected-to-raise-interest-rates-in-fight-against-inflation
I like how you considered both sides when it comes to the FED's actions regarding current economic problems. I would be open to letting them enact more policy, what is your opinion on the matter?
ReplyDeleteI think it is imminent that inflation will continue to rise at an alarming rate. Raising interest rates would help but, I the FED should not be too aggressive with their rise. It is a problem when 80% of all US dollars in existence are printed in the last 22 months. With that statistic, I think that inflation will occur rapidly regardless of policy.
DeleteI think your evaluation of both sides when it comes to what policy is best suited for dealing with the increased cost of living and prices as a result of the Covid-19 pandemic was thorough. I personally think that raising interest rates slightly is the best course of action, as it can be done quickly and with enough care, could put the United States economy back on track and growing as it was before the pandemic.
ReplyDeleteI also really like how you considered both sides of the argument when it comes to the FED increasing interest rates. Personally, I think that the FED will most likely raise interest rates at least once this year to try and combat the very high inflation our economy is currently facing. This could help the economy reset itself and continue to grow, and if it instead starts to hurt the economy, the FED could always just lower rates again in response, if they feel that is the best thing to do at the time.
ReplyDeleteI think that it will be interesting to see how the FED handles inflation and the impact that it has on the economy. I believe that it would be in the best interest of the economy to increase the inflation rate as it will help to counter inflation. While increasing interest rates may hurt GDP, I think it is the best move to keep the economy stable.
ReplyDeleteI believe that slowly raising the interest rates will be the best way forward. Inflation is increasing by the day and as we saw with this month that the consumer spending has been static. An abrupt increase in the interest rates could be detrimental to the recovering economy but small increases in interest rates over time could work.
ReplyDeleteIn my opinion, increasing interest rates is what economy needs. Even though it can negatively effect on households and businesses, it should slowdown the inflation. In 2021, inflation rate was 7%, which is shocking, so the Fed has to step in as soon as possible.
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