Since March this year, the Fed has failed to control consumer prices which is 8.5% higher than last year. It is the most rapid annual rise since 1981. The Fed seems to be at a loss of control. Americans believe that inflation is the country’s number one problem. President Biden has released strategic reserves to try curbing petrol prices. Democrats on the other hand, keep blaming here and there, from its villains to Vladimir Putin.
Basically, the Fed however, has the control over stopping inflation. In three decades, it has been the worst. It could target central banks. Although there is a good sign that inflation might rise, the Fed’s 2% target is still a long journey. The soaring price of commodities is to blame, annual price rises of 7.5% in the euro area. In Britain, the price also rises 7% due to global problems. Around three-quarters of the euro zone’s inflation is due to the escalating prices of energy and food.
Although America is far from failing due to its higher incomes, America’s inflation however has doubled Europe’s standard. America has reached 6.5% while the euro zone is 3%. Plus, America’s labor market’s condition is more severe than Europe. America’s wages grow at an average pace of nearly 6%. The recent falls on other sectors like prices of oil, cars and shipping mean that the inflation would fall in the next months.
Mr, Biden’s spending has been the highest among the richest countries in the world. He had spent excessive fiscal stimulus for as much as $1.9trn. Rounds of spending such as pandemic taking 25% of GDP is one of them. When the White House spends too much, the Fed should have hit the brake, suggested The Economist.
Fed, however, missed the brake. It hesitates due to the difficulty in overseeing the path of the economy during the pandemic. Plus, there is also a tendency of policymakers to fight the last war. Furthermore, this failure has inflicted insidious changes among central bankers worldwide.
