Inflation & What the Fed is Doing to Fight It

Inflation remains top of mind for everyone, especially as news outlets continue reporting on climbing prices and volatility in the markets.

All eyes have fallen on the Fed in 2022, as they face the task of attempting to manage inflation while (in a perfect world) keeping the U.S. out of a recession. To do that, they’ve turned to inflation’s “antidote” – interest rates. Rising interest rates put the economy at a greater risk of entering a recession, but they’ve also become one of the Fed's most powerful tools in its fight with inflation. Interest rates are just one tool in the Fed's toolbox. The Fed is tightening money in an attempt to slow demand by forcing risk assets lower – stocks, houses, etc.

Economists and top officials, however, have varying opinions on the severity in which the Fed must hike rates. Too high, and a recession may follow. Too little, and inflation continues to erode price stability.

Here’s a recap of what the Fed’s done so far.

Until 2022, the Fed had kept the Federal Funds rate at 0%-0.25% since nearly the start of the pandemic. But when inflation hit 8.5 percent in March, interest rates rose by a quarter of a percentage point. The Fed hiked rates again by 0.50 percent in May, another 0.75 percent in June, and another 0.75 percent in July. Many expect Fed officials will maintain their hawkish stance and continue raising rates throughout the remainder of 2022. To what degree, however, remains to be seen.

The intention of higher interest rates is to slow down consumer spending and, in turn, curb inflation. In the meantime, higher prices at the pump and spending more on groceries is frustrating. The good news is, your portfolio was built to weather storms like this one. If you’re continuing to see news about inflation and are worried about your spending, don’t hesitate to reach out. I’m always here to offer more insights on how to keep your long-term goals in focus.