Americans look to the country’s most powerful bank, the Federal Reserve, to combat inflation.
“I think our biggest problem, at least for the foreseeable future, is high inflation,” Mark Zandi, chief economist at Moody’s Analytics, told CNBC.
The Fed can raise interest rates to slow inflation, which ultimately makes the cost of borrowing higher for everyday Americans, and that can be just as painful as inflation.
“The big question mark is how quickly will inflation come under control?” Julia Pollak, chief economist at ZipRecruiter, told CNBC.
The central bank already raised interest rates five times in 2022, and there are more rate hikes on the way.
But the Federal Reserve does not have to take on the battle alone.
Fiscal policy enacted by Congress and power wielded by big business can help fight rising costs.
“Congress has much more targeted tools,” Claudia Sahm, former Fed economist, told CNBC. “It’s about making the system work more effectively, so all these costs don’t get piled up on individuals.”
For example, the Biden administration passed the Inflation Reduction Act. This $739 billion sweeping tax, health and climate bill aims to reshape the U.S. economy.
“Taxpayers eventually have to pay for them, but they can release a lot of pressure on families and businesses that are trying to pay the bills,” Sahm said.
Then there’s the private sector’s power. As people started expecting higher prices, some are arguing that companies are taking advantage of expectations and increasing prices even further than is necessary.
According to the New York Fed, the more inflation an industry saw, the more gross profits increased.
Watch the video above to learn more about how corporations and Congress influence inflation, why the Fed doesn’t have to take on rising costs alone and what it will take to normalize the U.S. economy.
Source : Sky.com