The Federal Reserve to Focus on Controlling Price Increases

Federal Reserve officials are shifting gears in response to post-pandemic inflation, hoping to slow rapidly rising prices since the economic recovery is well underway.

The U.S. is currently experiencing the highest rate of inflation seen since the 1980s, and Americans are feeling the burden of higher gas prices, rents, and energy costs. As a result, the Federal Reserve on Wednesday signaled a readiness to shift its focus from rescuing the labor market from the depths of the pandemic downturn to protecting consumers from ever-increasing prices.

The Federal Reserve will accelerate its plans to wind down its bond buying operations, thereby offering less economic stimulus.

Officials also projected that the Federal Reserve will increase interest rates three times in the coming year, after the asset-buying program ends in the spring.

Federal Reserve Chair Jerome Powell said last week that the U.S. is making “rapid progress toward maximum employment,” and officials estimated the unemployment rate would return to a pre-pandemic level of 3.5 percent by the end of next year.

“With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen,” a statement released by the Federal Reserve on Wednesday reads. “Job gains have been solid in recent months, and the unemployment rate has declined substantially. However, supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation.”

It has been clear for some time that the current inflationary period is not going to be transitory. The only real question now is how many interest rate hikes it will take in 2022 to soothe the economy without discouraging access to other economic drivers like loans.