How the Federal Reserve fights inflation by raising interest rates

Senior Federal Reserve officials have been seeing inflation data come in too hot for months before policy makers move to cut monetary policies that have been stimulating the economy.

A chorus of analysts, economists, and former policy makers chimed in, arguing that this was a mistake.

“Future guidance in general has slowed the Fed’s response to the inflation problem,” former Federal Reserve Chairman Ben Bernanke told CNBC.

Treasury Secretary Janet Yellen has also admitted that the misdiagnosis comes from her own administration, and current Federal Reserve Chairman Jerome Powell.

“Maybe we both could have used a better word than ‘temporary,'” she told senators in June when asked about their observations of inflation last year and their slow response to price pressures.

It is the Fed’s job to tame inflation at a pace not seen in four decades. To do this, interest rates were raised at a rapid pace.

Curbing inflation may require more aggressive monetary policy moves than the central bank has adopted in recent years, according to economists such as Judd Cramer. search it It indicates that the Federal Reserve may need to raise interest rates to levels not seen in decades to force higher rates to decline.

“If inflation is going to be high and it stays high, that means the neutral rate in the economy will also go up because commodity prices are going up,” he told CNBC.

Jun survey Inflation forecasts from the Federal Reserve in New York Indicates that the price hike is not over yet. The group expects that by June 2023, prices will have risen approximately 6.8% from their current levels.

See also  Minneapolis City Council members may delay the rollout of Uber and Lyft's minimum wage ordinance

Maintaining price stability and increasing employment are the primary responsibilities of the Federal Reserve. Jobs appear to be plentiful in the US, which could give the central bank cover to raise interest rates at a robust pace until 2023.

The Fed has been contacted for comment but in a media blackout ahead of the expected interest rate announcement later today.

Watch the video above to learn more about the Fed’s mistakes regarding inflation, along with its plan to get the economy back on track.

Leave a Reply

Your email address will not be published. Required fields are marked *