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Federal Reserve Working to Control Inflation…

Federal Reserve Working to Control Inflation…

June 29, 2023

Inflation in the US has affected nearly every aspect of our lives. From the grocery store to the car dealer, from airfares to a night at the movies…and let’s not forget the soaring cost of housing.

As prices rise, the value of our money decreases, making inflation a serious issue for individuals and businesses alike. Since inflation began its recent climb, the Federal Reserve has sought to slow down the economy and prevent prices from rising too quickly by raising interest rates.

During the last period of rate hikes by the Federal Reserve, which took place from 2015 to 2018, there were several examples of how this strategy was successful in curbing inflation. For example, the Consumer Price Index (CPI), a measure of inflation, increased by only 1.9% in 2018, which was below the Federal Reserve's target of 2%. This was due in part to the rate hikes, which helped to slow down economic growth and stabilize prices.

Employing that rate hike strategy again during this current inflationary cycle seems to be working. According to Statista, a leading provider of market and consumer data, in May 2023, the CPI showed inflation at 4 percent compared to the June 2022 high of 9.1%.

However, rate hikes can also have negative effects on the economy, such as slowing down consumer spending and decreasing credit availability. This is why the Federal Reserve carefully balances the benefits of raising interest rates with the potential risks and drawbacks.

As a consumer, it is important to be aware of how inflation and interest rates can affect your finances. Higher interest rates can make it more expensive to borrow money, while also increasing the returns on savings accounts and other investments. By staying informed and making smart financial decisions, you can better protect yourself against the negative effects of inflation and interest rate hikes.

Being vigilant during inevitable monetary cycles can help to insulate your financial future from unnecessary losses. Your One Financial Services advisor is always available to help guide you through the ever-changing investment landscape.