To combat the highest inflation rate during the height of “stagflation” in 1981, the Federal Reserve on Wednesday announced yet another increase to the central bank’s overnight interest rate, hiking it 75 basis points. Overall, the Fed has gradually increased interest rates from near 0 to between 2.25 and 2.50 percent in just four months, the fastest tightening of monetary policy since the Fed’s attempt to battle stagflation in the early 1980s.
If the United States were simply experiencing a sustained period of inflation caused by booming consumption and investment activity, this might constitute an effective approach. Yet, this inflationary period has been caused by excessive money printing at the hands of the Fed and substantial government spending throughout the COVID-19 pandemic, rather than any sort of natural phenomenon.
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