The fight against inflation may cause pain. Here’s how Americans will feel it
by Sylvan Lane - 09/10/22 5:59 AM ET
Federal Reserve Chair Jerome Powell sounded a warning to Americans last month as the central bank continues its efforts to combat high prices: The fight against inflation is going to be painful.
“Higher interest rates, slower growth and softer labor market conditions will bring down inflation. They will also bring some pain to households and businesses,” Powell said last month.
The Fed has hiked interest rates four times this year already in an effort to stanch price increases.
When the Fed raises interest rates, money becomes more expensive to borrow, harder to get, and more worthwhile to save. The goal is to bring down the amount of money consumers and businesses are willing to spend to a level where firms can no longer afford to keep raising prices for their goods and services.
In other words, the Fed wants demand for goods and services to fall closer to supply which has dwindled as a result of obstacles created by the COVID-19 pandemic, the war in Ukraine, and other shocks.
In an ideal world, the Fed can raise interest rates gradually enough to bring inflation down without slowing the economy. But economists generally agree that inflation has risen too high for the Fed to bring it down without causing at least some hardship.
“We’re taking a very distributed pain that’s very unpopular because it touches everybody,” said Claudia Sahm, a former Fed research director, of high inflation, “and there’s only a fraction of the country that’s gonna pay for it to get it down.”
“The people who will pay, who feel the pain from the Fed fighting inflation, they are not sitting at the table making the decisions,” she continued.
Here are three ways Americans could feel the squeeze.
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https://thehill.com/policy/3636760-the-fight-against-inflation-may-cause-pain-heres-how-americans-will-feel-it/
