Inflation is a severe issue in every country, and the world’s largest economy is not an exception. Currently, the United States is in the midst of the most significant spike in inflation in a long time, according to data provided by the Department of Labor. Prices for various consumer goods jumped 6.2% between October 2020 and October 2021, the biggest one-year jump since 1990.
As a reminder, inflation measures how quickly the cost of goods and services increases over time. A steady inflation rate is not an issue. On the contrary, it is good for the economy. However, when prices rise too quickly, necessities suddenly become more challenging to afford. Thus, Americans have to spend more money on food, gas, and rent.
In the 1970s, prices increased for several years until the Fed cranked up interest rates to get things under control. The central bank’s decision did eventually reduce inflation. Nonetheless, it also plunged the country into a recession. Some people like to compare the current situation with the 1970s.
Inflation and policymakers
Joe Biden’s administration position regarding inflation is quite interesting. The White House believes that the problem will mostly resolve itself once life returns to a relative normal. President Joe Biden thinks that his legislative agenda will help alleviate some of the supply issues feeding inflation.
Many people called for the Federal Reserve to raise interest rates and reduce its purchases of bonds.
Federal Reserve’s Chairman Jerome Powell said recently that he won’t have a clear view of the state of inflation until the Covid-19 and its economic impacts recede even further. Jerome Powell also said unemployment is too high at the moment to consider a hike in interest rates anytime soon.
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