![]() ![]() Why is the Federal Reserve raising rates? Some lawmakers have also accused corporations of seizing on inflation as an excuse to increase prices more than necessary, a form of price gouging. Powell confirmed the World Bank's findings at the Fed's June meeting, calling these external factors challenging because they're outside of the central bank's control. Unanticipated shocks to the global economy have made things worse - particularly subsequent COVID-19 variants, lockdowns in China (which restrict the availability of goods in the US) and Russia's war on Ukraine (which is affecting gas and food prices), according to the World Bank. Though the immediate impacts of COVID-19 on the US economy are easing, labor disruptions and supply-and-demand imbalances persist, including shortages in microchips, steel, equipment and other goods, causing ongoing slowdowns in manufacturing and construction. "The pandemic put distortions on both the demand and supply side of the US economy," Bivens said. This caused the flow of goods produced and manufactured abroad and shipped to the US to cease for at least two weeks, and in many cases, for months, according to Pete Earle, an economist at the American Institute for Economic Research.īut the reduction in supply was met with increased demand as Americans started purchasing durable goods to replace the services they used prior to the pandemic, said Josh Bivens, director of research at the Economic Policy Institute. Millions of employees were laid off, many businesses had to close their doors and the global supply chain was abruptly put on pause. In March 2020, the onset of the COVID-19 pandemic caused the US economy to shut down. In short, a lot of this can be attributed to the pandemic. In fact, more Americans are living paycheck to paycheck, and wages aren't keeping up with inflation rates. Gas prices declined significantly by 10.6% in August - marking a two-month trend - but that was offset by increasing prices of food and shelter.ĭuring periods of high inflation, your dollar has less purchasing power, making everything you buy more expensive, even though you're likely not getting paid more. ![]() In August, inflation increased to 8.3% over the previous year, though it has declined slightly from July's 8.5% reading and June's record high 9.1% yearly increase, according to the Bureau of Labor Statistics. Here's everything you need to know about what's causing this record high inflation and how the Fed hopes to bring levels back down. "We anticipate that ongoing increases in the target range for the federal funds rate will be appropriate the pace of those increases will continue to depend on the incoming data and the evolving outlook for the economy." "The Fed's monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people," Federal Reserve Chair Jerome Powell said during a July press conference. Though gas prices decreased, the cost of food and housing continues to climb, according to the latest Consumer Price Index report. This week's rate increase was in response to persistent inflation, which rose by 0.1% from July to August, despite slightly cooling year over year. As rates rise, the cost of borrowing also becomes more expensive. The US Federal Reserve increased rates by 75 basis points on Wednesday, marking the fifth - and likely not the last - rate hike of the year. Rising consumer prices, unpredictable stock prices, increased costs to borrow money and the threat of layoffs could be particularly devastating for low- and middle-income Americans. Why it mattersĪs the Fed continues to drive up interest rates, there will be consequences: an increase in interest rates for mortgages, credit cards and loans, and most likely an uptick in unemployment. In an effort to quell stubborn inflation, the Federal Reserve raised interest rates again on Wednesday - and anticipates more rate hikes in the future. ![]()
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