Unraveling the Puzzle: Why Inflation is Still High Even after the Fed’s Year-long Rate Hike?
The Federal Reserve, led by Chairman Jerome Powell, has increased interest rates ten times since March 2022 in an attempt to combat inflation, but backed away from previous statements that suggested future increases.
According to the the latest CPI report, inflation eased to 4.9% in April 2023 but it is still high. Many analysts has warned that Fed rate hike in June can’t be rule out. This article delves into the reasons why the Federal Reserve’s decision to raise interest rates may have fallen short in curbing inflationary pressures.
The current surge in prices since the pandemic has been a persistent concern for economies worldwide, and central banks play a crucial role in managing and stabilizing it. One of the primary tools at the disposal of central banks is the adjustment of interest rates. However, there are instances when a rate hike does not yield the expected outcome of reducing inflation.
Insufficient Transmission Mechanism
When the Federal Reserve raises interest rates, the intended goal is to make borrowing more expensive, thereby…
