The personal consumption expenditures price index, the Fed’s preferred metric for tracking inflation, is rising at a year-on-year rate of 6.4% as of February.
Increasing beats the 6.1% rate registered in January, marking the highest rate of inflation since 1982. Excluding volatile categories such as food and fuel, the PCEPI rose 5.4% year over year.
Rising price levels have been a major criticism of President Joe Biden’s first year in office, with 83% of Americans responding in the affirmative to a poll asking if “the increase in the prices of everyday items caused you or your household any hardship” during the last month.
In addition, voters were also asked about the recent increase in gasoline prices. 39% blamed the trend on the Biden administration; 21% blamed Russia for oil and gas sanctions imposed by the Biden administration and Western allies; 18% blamed oil and gas companies; and 8.5% blamed COVID-19.
Last month, the Federal Reserve, which is charged with manipulating the money supply to achieve stable inflation and maximum employment, high interest rates for the first time since December 2018. The increase of 0.25% from levels close to zero is an attempt to curb inflation; in fact, the Fed forecasts six more rate hikes in 2022, three in 2023, and zero in 2024.
“Indicators of economic activity and employment have continued to strengthen. Job creation has been strong in recent months and the unemployment rate has declined substantially,” the central bank’s Federal Open Market Committee said in a statement. statement. “Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher energy prices, and broader pricing pressures.”
“The Committee decided to raise the target range for the federal funds rate from 1/4 to 1/2 percent and anticipates that continued increases in the target range will be appropriate,” the statement continued. “In addition, the Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at an upcoming meeting.”
As Cabot Phillips of The Daily Wire explained on a recent episode of morning wirethe rate hike will have a ripple effect throughout the economy.
“The general idea is that as interest rates rise, average people are less likely to get loans because the deals aren’t as good as they used to be,” he explained. “As long as that happens, the idea is that people will stop borrowing and spending money, which will leave fewer dollars active in the economy … hopefully curbing inflation.”
“Anyone who gets bigger loans will notice,” Phillips continued. “If you have an existing car loan or a federal student loan, those won’t be affected, because they’re fixed rates, but others will.”
For its part, the Consumer Price Index increased by 7.9% for the 12 months ending in February, hitting another 40-year high. In response to rising prices for gasoline and other staples, some governors are suggesting amendments to various state taxes.
“As Americans see the cost of living skyrocket amid historic inflation, suspending the food tax is the most effective way to provide direct relief to all Tennesseans,” said Governor Bill Lee ( R-TN) in a statement. statement proposing a pause in the state grocery tax. “Our state has the ability to put dollars back in the pockets of working Tennessee people, and I thank the members of the General Assembly for their continued partnership in maintaining our fiscally conservative approach.”
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