What Will They Do about Inflation?
What Will They Do about Inflation?
As inflation continues to rise, Federal Reserve Chair Jerome Powell admits that it is far from temporary. He suggests aggressive interest hikes as a risky but efficient way to combat the current situation.
From Daily Mail. Federal Reserve Chair Jerome Powell said Monday that the central bank may need to get more ‘aggressive’ with interest rate hikes as inflation is ‘much too high.’
The Fed raised its benchmark interest rate by a quarter of a percent last week to between 0.25 and 0.5 percent. Officials planned on a series of 0.25 percent increases throughout the remainder of the year that would draw rates up to 2 percent by the end of 2022 and to 2.75 percent next year.
‘The labor market is very strong, and inflation is much too high,’ Powell said in remarks for the National Association of Business Economics….
Talk of rate hikes comes as the consumer price index has reached 7.9 percent as of February, the highest inflation rate in four decades. The core personal consumption expenditures (PCE) index, the Fed’s favored measurement, is at 5.2 percent, still well above the Fed’s 2 percent target….
The Fed is now tasked with walking a fine line between putting checks on current inflation levels and avoiding too aggressive a response that they trigger a recession….
The Fed spent much of last year insisting inflation was ‘transitory’ and even in January expected inflation to diminish in 2022 as supply-chain bottlenecks improved.
‘That story has already fallen apart,’ Powell admitted Monday. ‘To the extent it continues to fall apart, my colleagues and I may well reach the conclusion we’ll need to move more quickly. And if so, we’ll do so….’
When the Fed raises its short-term rate, borrowing costs also typically go up for consumer and business loans, including for homes, cars and credit cards….
The central bank now projects overall inflation will be up 4.3 percent just this year and a 4.1 percent rise in the core personal consumption expenditures price index.
The unemployment rate is seen dropping to 3.5 percent this year and remaining there next year, but is projected to rise slightly to 3.6% in 2024.
The U.S. has since recovered all but 2.1 million of the 20 million jobs lost during the coronavirus pandemic.
Over the course of the last two years, the Fed has bought at least $120 billion a month in Treasury and mortgage-backed securities to provide a boost to the economy….
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(Excerpt from Daily Mail. Photo Credit: olieman.eth on Unsplash)
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