STUBBORN INFLATION PUTS THE FED IN A BAD SPOT INDEED
Written by Peter Boykin on March 19, 2023
Shared By Peter Boykin – American Political Commentator / Citizen Journalist
STUBBORN INFLATION PUTS THE FED IN A BAD SPOT INDEED
Looks like the Fed is between a rock and a hard place
Inflation in February cooled slightly, but is still stubbornly high at 6%, despite efforts by the Federal Reserve to bring it down to a target 2% rate.
What areas got hit the worst in February?
According to the U.S. Bureau of Labor Statistics report:
🥪 Food at home [groceries]: +10.2%
💡 Electricity +12.9%
💨 Utility gas for homes: +14.3%
🏠 Shelter: 8.1%
🍞 Bread: +15.8%
🍗 Poultry: +9.5%
🥚 Eggs +55.4%
🥛 Milk: +8.1%
Inflation has now been at least 5% or higher since June 2021 – 21 straight months.
And making matters worse, this has coincided with 22 straight months of real wage decline for American workers.
Real wages are [monthly wage increase] minus [monthly inflation].
This next part gets in the weeds a bit. Have some coffee on hand…
The Federal Reserve has a big problem on its hands.
They have raised interest rates [from effectively zero] to their current level of about 4.5% in order to try and bring down inflation.
The idea is that making interest rates higher will make items more expensive for Americans.
➡️ More expensive items will create less demand for those items.
➡️ When demand is lower, inflation should become lower.
…and it’s worked slightly [we’re down from 9.1% last June] but not well enough.
Here’s the big problem: Raising the interest rate is part of what caused the Silicon Valley Bank collapse.
Now the Fed is going to be hesitant to continue raising rates for fear of more banks collapsing. But if they don’t keep raising rates, inflation is going to get worse.
They are truly stuck between a rock and a hard place.
[Source: Statista, U.S. BLS]
https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us
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