The hottest topic of the U.S. economy right now is the inflation. For the annual period ending August 2022, the inflation rate was as high as 8.3%. Ideally the Fed wants inflation to be a quarter of the current rate, roughly 2%. This high rate of inflation is causing many people to feel uneasy, and rightfully so. Inflation can be good for a number of reasons but high inflation can mean trouble for the job market and the economy in general. So, the Fed is declaring war on the inflation in the market.
I read the article The Fed Intensifies Its Battle Against Inflation published by the New York Times and written by Jeanna Smialek. The article detailed how the Fed is attempting to combat the inflation rate and force it down. Recently, the Fed increased the interest rate by three quarters of a percentage point, leaving the interest rate to be 3% to 3.25%. This is a major increase from the past and yet the Fed is planning to keep raising the interest rate at roughly the same amount unless inflation takes a turn. The chair of the Federal Reserve, Mr. Powell, understands that the increased inflation will lead to pain for many people. However, he knows that is necessary. He's quoted for say "We need to get this inflation behind us, I wish there were a painless way to do that; there isn't". This shows just how exactly the Fed views this inflation: as an enemy that must be eliminated. We can only assume that the tactics by the Fed will only get more and more aggressive to face this inflation, which is truly for the best. No matter how difficult, these things must be done. Inflation is a dangerous thing so it only makes sense that combating it is a painful process.
I wonder how many times the fed will continue to increase the rate and how much it will affect the community and business as a whole. With less spending from consumers the businesses will defintly be impacted which is not something they are excited for especially just coming out of covid where small buisness had to fight to stay open through that, but yes I agree it is just something that is necessary to get our inflation rate back to where we want it to help the economy as much as we can in the long run. With the country still trying to recover from covid as well as the war in Ukraine the country has to go into a complete 180 to try and straighten out inflation.
ReplyDeleteHistorically unemployment and inflation are inverse forces. Meaning higher inflation will bring lower unemployment and vice versa. Will dramatic increases in the interests rates combatting inflation also increase the rate of unemployment when inflation goes down?
ReplyDeleteThe first thing that stood out to me about this article was the phrasing "war on inflation" because a "war" on anything has not been every effective in recent history. I understand that the Fed is doing what they think is best. However, how are they planning to help people cope with even higher rates of inflation?
ReplyDeleteI hope that however they cope with the inflation does not overcompensate and lead to deflation and I hope the raised interest rates work and make enough of a difference on people spending or not spending in order to combat inflation
ReplyDeleteInflation most certainly has been the hottest topic over the past 4-5 months especially since we are now starting to see very aggressive movements from the federal reserve in order to combat inflation. It seems that every time there is a speaking from Jerome Powell that it aims to reduce inflation by any means necessary. Unfortunately this includes increased interest rates. We will see this effect the economy in painful ways but they are certain that inflation will start to see a decrease in the upcoming months. It is important for inflation to consistently sit around 2% in order for consistent growth and increase in real wages year over year. Increased interest rates will effect the new and existing housing market as well and any other large investments that are typically financed. It is easy to see that the battle of inflation will not come without some pain and other economical domino effects.
ReplyDeleteThis comment was published by Ryan Stefancin ^
DeleteI think it is interesting that the Federal Reserve has declared "war on inflation", but at the same time strives to keep 2-3% inflation in the economy normally. This view by the Federal Reserve that inflation is an enemy to be eliminated seems to be a bit contradictory because of that. High inflation does need to be combated, but I think the perspective the Federal Reserve is showing in this article should have been worded differently to focus on the idea that specifically high inflation is the enemy and not inflation in general.
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