U.S. inflation is at its highest level in 3 decades. What does the Federal Reserve plan to do about it?
The annual rate of inflation is the highest its been in the United States since June 1982, according to U.S. Labor Department data published December 10. What factors contribute to increasing prices for goods and services, and how can they be reined in?
The inflation rate jumped to 6.8% in November. The consumer price index shows that since Nov. 2020, food prices rose 6.1%, energy is up 33.3%, the cost of gas increased 58.1%, car and truck prices increased 31.4%, and shelter costs grew by 3.8%.
The Federal Reserve’s position had previously been that rising prices would be “transitory” and would mostly impact sectors most affected by the pandemic, but officials changed their tune on Wednesday, announcing a ramped-up timeline for plans to keep inflation in check.
In what experts say is a significant shift in its approach, officials said they would reduce the central bank’s bond-buying program faster than was previously planned and suggested there could be as many as three interest rate hikes in 2022 in response to “elevated inflation pressures.”
What is inflation and how does it work? Why do economists disagree about the best approach to get inflation under control? How does a higher rate of inflation impact households, businesses, the labor market and overall health of the U.S. economy?
What are the specifics of the plans announced by Federal Reserve leaders on Wednesday? Why have previous efforts to reign in the costs of goods and services not been more successful? Is rising inflation a uniquely American problem? Is the pandemic to blame?
- Jeanna Smialek, New York Times reporter covering the Federal Reserve and economy
- Eric Leeper, Ph.D., Paul Goodloe McIntire Professor in Economics and director of the Virginia Center for Economic Policy at the University of Virginia, and a research associate at the National Bureau of Economic Research
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*This interview was recorded on Thursday, December 16.