US Fed Chief Powell to Raise Interest Rates to Stop Highest Price Inflation since 1982
By Yehudit Garmaise
The prices Americans pay for everyday goods and services soared upwards 7% in the last 12 months, which is the greatest spike in prices that has taken place in one year, since 1982, reported the US Department of Labor today.
The Labor Department attributed the price inflation to the staffing shortages and other setbacks factories and the shipping and trucking industries experienced during the pandemic.
As prices for food, gas, clothing, new and used cars, furniture, homes, and medical care continue to rise, economists and legislators consider how to drive down the inflation that is not "just disappearing," as many said it would as the pandemic, hopefully, wanes.
Further stressing Americans is the fact that their incomes are not increasing along with the prices of things they need.
The rate of inflation's climb is "far outstripping the wage growth of most Americans and squeezing the buying power of households," Greg McBride, the chief financial analyst at Bankrate, an NYC-based consumer financial services company, told ABC news.
US Federal Reserve Chair Jerome Powell, however, has vowed to take action to prevent inflation from persisting in the US economy.
“We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched," Powell said.
One tool that Powell is prepared to use to respond to climbing prices is his ability to raise interest rates, and therefore, the cost of credit throughout the economy, faster than he originally planned, said Powell in testimony before lawmakers.
Raising interest rates can lower inflation and “cool off the economy” by making loans more expensive for both businesses and consumers, who will be discouraged from borrowing and financing new projects and purchases.
When the Fed raises interest rates it “encourages people to save money to earn higher interest payments,” which reduces the supply of money in circulation, lowers inflation, and moderates economic activity, Forbes Advisor wrote.
"We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation," Powell told lawmakers on the Senate Banking Committee. "We are strongly committed to achieving our statutory goals of maximum employment and price stability.”