Prices are Rising, Should you be worried?
by Jacob Tobin, Junior, iPreparatory Academy
by Jacob Tobin, Junior, iPreparatory Academy
Do you like to buy things in US Currency? Would it scare you if your money could buy substantially fewer things in the future? Well, this decrease in purchasing power of the US dollar is happening right now. Why is your money buying less things? What is the government doing to stop this? If you care about your money, then read this article.
Background on the FED
Did you know, the current rate of inflation of the US dollar in the United States is at least 7.5%? The Federal Reserve is the central bank of the United States and it aims to control inflation. The Fed's main duties are to “conduct national monetary policy, supervise and regulate banks, maintain financial stability, and provide banking services.” as written on investopedia.com, a website founded in 1999 whose editor in chief is Caleb Silver, Emmy nominee and business leader. The Federal Reserve controls inflation by setting interest rates. Inflation is usually supposed to be around 2% in the United states. Currently inflation is at its highest level, according to Jeanna Smialek, writer for the NY Times.
Let's find out what inflation is, why it is exploding, and how the Fed plans to tame it. Why is this important?
Let's find out what inflation is, why it is exploding, and how the Fed plans to tame it. Why is this important?
What is Inflation
According to Investopedia.com, “Inflation is the decline in purchasing power of a given currency over time.” When the Fed prints too much money, the purchasing power of that money declines. If you don't understand why, here is an example: Something that is rare and limited, like gold, costs more because there is only a finite amount of it in existence. If everyone had lots of gold, it would be worth less. When you have a copious amount of something, it has low value. When you have a small amount of something, it has high value.
Why is inflation so high today?
Here are a few main reasons why inflation is exploding.
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How does the FED plan to fix inflation?
According to Jeff Cox at CNBC, The Fed plans to increase interest rates in order to try and cool down inflation. The Fed also plans to decrease its bond buying program. The Fed currently buys 80 billion dollars worth of treasury securities and 40 billion dollars worth of mortgage backed securities each month. When the Fed buys over 100 billion dollars of bonds every month, they directly increase the money supply, which increases demand, which leads to increased prices and reduced purchasing power. The Fed plans to reduce the amount of securities they buy each month and raise interest rates to tame this inflation.
So, knowing all of this information is very important for your pockets. Prices are rising and it is important to learn about why this is happening, so you can find ways to minimize the negative effects for yourself and your family.
So, knowing all of this information is very important for your pockets. Prices are rising and it is important to learn about why this is happening, so you can find ways to minimize the negative effects for yourself and your family.
Work Cited:
Hayes, Adam. “Federal Reserve System (FRS) Definition.” Investopedia, Investopedia, 8 Feb. 2022, https://www.investopedia.com/terms/f/federalreservebank.asp.
https://www.nytimes.com/article/inflation-definition.html
https://thehill.com/opinion/finance/581101-voters-are-correct-biden-is-to-blame-for-inflation
Jdickler. “The Fed Holds Rates near Zero Yet Some Borrowing Costs Are Already on the Rise.” CNBC, CNBC, 3 Nov. 2021, https://www.cnbc.com/2021/11/03/the-fed-holds-rates-near-zero-heres-what-that-means-for-you.html.
Austin, Craig. “How the Supply Chain Caused Current Inflation, and Why It Might Be Here to Stay.” PBS, Public Broadcasting Service, 10 Nov. 2021, https://www.pbs.org/newshour/economy/how-the-supply-chain-caused-current-inflation-and-why-it-might-be-here-to-stay.
JeffCoxCNBCcom. “Inflation Surge Could Push the Fed into More than Four Rate Hikes This Year, Goldman Sachs Says.” CNBC, CNBC, 23 Jan. 2022, https://www.cnbc.com/2022/01/23/inflation-surge-could-push-the-fed-into-more-than-four-rate-hikes-this-year-goldman-sachs-says.html.
Hayes, Adam. “Federal Reserve System (FRS) Definition.” Investopedia, Investopedia, 8 Feb. 2022, https://www.investopedia.com/terms/f/federalreservebank.asp.
https://www.nytimes.com/article/inflation-definition.html
https://thehill.com/opinion/finance/581101-voters-are-correct-biden-is-to-blame-for-inflation
Jdickler. “The Fed Holds Rates near Zero Yet Some Borrowing Costs Are Already on the Rise.” CNBC, CNBC, 3 Nov. 2021, https://www.cnbc.com/2021/11/03/the-fed-holds-rates-near-zero-heres-what-that-means-for-you.html.
Austin, Craig. “How the Supply Chain Caused Current Inflation, and Why It Might Be Here to Stay.” PBS, Public Broadcasting Service, 10 Nov. 2021, https://www.pbs.org/newshour/economy/how-the-supply-chain-caused-current-inflation-and-why-it-might-be-here-to-stay.
JeffCoxCNBCcom. “Inflation Surge Could Push the Fed into More than Four Rate Hikes This Year, Goldman Sachs Says.” CNBC, CNBC, 23 Jan. 2022, https://www.cnbc.com/2022/01/23/inflation-surge-could-push-the-fed-into-more-than-four-rate-hikes-this-year-goldman-sachs-says.html.