Federal Reserve Changing Its Inflation-Busting Strategy?
The Federal Reserve has been trying to combat inflation with historically successful strategies, some think that may change.
This article is more than 2 years old
The Federal Reserve has been relying on tried and true methods in order to combat this period of unrelenting inflation. Steadily over the past few months, the Federal Reserve has raised interest rates for borrowers. The intended consequence of this is to cool the bloated market, which in turn would cause the costs of everything imaginable to finally start coming down. However, some are questioning the Federal Reserve’s approach, given that the public and thus the economy have not been responding as they historically would. This poses the question: Is the Federal Reserve about to change or completely abandon its inflation-busting strategy?
According to The New York Times, the Federal Reserve is sticking to its guns for now. A triad of individuals in prominent positions within the Federal Reserve banks within their respective cities all came forward recently to assert that the Federal Reserve is in no way rethinking the strategy it has been employing thus far. Mary C. Daly (the president of the Federal Reserve Bank of San Francisco), Neel Kashkari (the president of the Federal Reserve Bank of Minneapolis), and Charles L. Evans (the president of the Federal Reserve Bank of Chicago) collectively said that the Federal Reserve has no intentions to pivot away from its tried and true methods at this time.
The rumors that the Federal Reserve was potentially moving to change its tactics likely came about for a couple of reasons. First, Jerome Powell, the chair of the Federal Reserve, disclosed that the bank would start to consider rate hikes on a meeting-by-meeting basis. Simultaneously, the stock market, which has been exceedingly volatile in recent weeks, has begun to rebound slightly. These two circumstances caused some analysts to think that the United States could be turning a corner in the fight against inflation. But Daly asserted that these assumptions were unfounded and that the central bank is just starting to make headway in its quest to successfully combat inflation. “We’ve been with this high inflation for a while, and really getting too confident that we’ve already solved the problem, I think, would be a mistake,” emphasized Daly.
Looking at the state of the economy, Daly’s remarks are right on the nose. Prices for everything are still up. The Consumer Price Index revealed that inflation had reached 9.1% in June. In some parts of the nation, that figure is even higher. Gas prices are beginning to recede, but just barely. And even though companies have started to lay off workers, indicating that the labor market is cooling, there was still significant job growth. In June over 350,000 new jobs were added. Also, unemployment is still historically low. This means that despite the challenges the economy remains relatively robust. This means that inflation can continue to persist.
By all indications, the Federal Reserve will stay on its current strategic course. Aiming to chip away at inflation by incrementally increasing borrowing rates month by month. Using this strategy, the central bank hopes to accomplish what is known as a soft landing. Ideally, the central bank will de-bloat the economy just enough to get ahold of inflation-gone-wild but not so much so that it would fling the US into a full-on recession. As of now though, the jury is still out on whether that will actually happen.
