Rising Prices and Inflation in the United States: Understanding the Impact of the Fed's Rate Hikes

Key Highlights :

1. Consumer prices in the United States rose again in April, and measures of underlying inflation stayed high, suggesting that rising costs could persist for months to come.

2. The Federal Reserve is paying particular attention to so-called core prices, which exclude volatile food and energy costs and are regarded as a better gauge of longer-term inflation trends.

3. Core prices rose 0.4 per cent from March to April, the same as from February to March.

4. Increases at that pace are far above the Fed’s 2 per cent target.

5. When they met last week, the Fed’s policymakers agreed to raise their benchmark rate by a quarter-point, to about 5.1% _ the highest level in 16 years.

     The United States has seen a steady rise in consumer prices and inflation over the past year, with the latest figures showing a 0.4 percent increase in April 2021, and a 4.9 percent increase year-over-year. While the Federal Reserve has raised its benchmark rate by 5 percentage points to try to bring inflation back to its 2 percent target, this has led to higher costs for mortgages, auto loans, and credit cards, as well as a likely pullback in bank lending. In this article, we will explore the reasons behind the rise in prices, the impact of the Fed's rate hikes, and the potential consequences of a debt ceiling breach.

     The primary cause of the inflationary pressure is the supply chain snarls that left many grocery shelves empty and delayed the delivery of goods. This was compounded by the OPEC agreement to cut oil output, which caused gas prices to rise. In addition, companies have had to raise wages in order to attract and retain workers, resulting in higher costs for services such as restaurant meals, auto insurance, and education.

     The Federal Reserve's rate hikes are intended to slow spending, growth, and inflation, but these increases have made borrowing far more expensive for consumers and businesses. This has contributed to the collapse of three large banks in the past two months, and could lead to a further weakening of the economy. Moreover, the debt ceiling may be breached by early June, and if it isn't raised in time, the nation would default on its debt, which could cause a global economic crisis.

     It is clear that the Fed's rate hikes have had a significant impact on inflation and the economy. While the central bank is hoping that these increases will eventually have their desired effect, it is possible that they could lead to a recession in the near future. In addition, the looming debt ceiling crisis could cause serious economic disruption if it is not resolved in time. For these reasons, it is important to understand the implications of the Fed's rate hikes and the potential consequences of a debt ceiling breach.

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