Inflation And The Fed
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Posted 02/03/2022 in Category 1 by Breaie

Inflation And The Fed


Inflation And The Fed

"When inflation is too high, the Federal Reserve typically raises the interest rates to slow the economy and cool down the inflation.  When inflation is too low, the Federal Reserve lowers interest rates to stimulate the economy."  

The USA has been experiencing inflation for months, but not from an economy that is roaring full steam ahead with blazing economic growth.  Inflation has occurred due to supply and demand.  Demand has outstripped supply. so of course prices will rise which is basic economics. 

There is huge demand for goods and not enough supply from the supply chain break down, mandates, and the stoppage of drilling to remain energy independent.  When have to import gas from other countries, naturally you will pay more at the pump and all other goods that are for sale will see price increases as well due to the increase of cost of transportation.  Cost of electricity, and all other services have seen huge price increases all across the board. 

Shortages in the stores are from shutting down the global economy and as everyone starts to produce goods there is a ripple effect of being dependent on other companies to supply the parts needed to finish their products or get their goods to the market.  Just as we are seeing in the auto industry currently.  There is still a demand for cars, but very low inventory on new and used cars which are driving up the prices of what is available for sale. 

We have to take into consideration that we are in unusual times.  

We have continued shortages of every item that is available for sale because of shut downs. Empty or near empty shelves in the stores have been ongoing now for 2 years that have effected every item for purchase as well as food.  Factor in supply chains stretched so thin as possible that the last remaining links have broken. 

No denying anymore that there is no reliable consistent delivery of goods to the stores now.  Ships stay offshore unable to unload their goods and the perishables are left to rot on board the ships. Truckers can't make deliveries for a variety of reasons which I suggest you research that industry.  

The inflation could have been avoided by  remaining energy independent, keeping all countries economies going, as well as manufacture in each country.  Trade is good, but each country should be at a level of self sufficient that if goods are not available for import/export won't affect their citizens of their countries.

The United States now imports more products than it produces. Our trade deficit is now at one trillion dollars for 2021. The trade deficit for the US has been an ongoing issue for years.  That means we buy nearly all of our products from other countries, and manufacture very few items in the US. 

The sources state we are flush with cash and want to spend on goods.  Everything is imported.  Go look for products made in the USA to purchase.  Not a lot of options when you really start researching for made in the USA. When a country becomes a consumer nation by importing and produces very little of anything or nothing to export, that country will eventually see their costs of their imports increase and economic decline.  


There is a term called comparative advantage.  Simply stated comparative advantage is a country can produce products cheaper than other countries, so they have an advantage. Think about this also.  When import majority of goods, money leaves the economy of the importing country and goes to another country that exported their goods to build their economy.  That is lost jobs to the importing nation as well as lost skills and trades also in those industries.

The powers that be which is the Federal Reserve seems to think we have an economy that is red hot and growing too fast so they want to raise the rates to slow the economy and decrease the inflation rates by reducing demand, but this act basically means lower economic growth for the United States.  Raising the interest rates in the face of shortages is not going to stop inflation, but only raise the cost of all goods and services all across the board even higher.  The demand for the basics will still be there because we all have to eat, travel if nothing but for work, need clothes, possible medications, and shoes.  

They say this is the great resignation and many jobs are unfilled.  Most of the industries that have high quit rates of workers are in the service sector jobs that don't pay decent wages to survive.  This group is looking for other options for making a living.  

The reports are out on the unemployment numbers which are totally skewed. The numbers show low unemployment numbers, The unemployed are counted as out of work if they are drawing unemployment only.  No unemployment check, not counted on the unemployed rolls. If you work part time and want full time work, you are counted as employed. 

An article that came out on The Balance that showed only around 199,000 jobs were created for December 2021. Those are pitiful numbers for jobs created.  If you dig in to those numbers, a lot of those jobs are low wage dead end jobs. Not an indicator of a smoking hot economy that needs rate hikes.  

Ethan Harris an economist at Bank of America has reported that the Fed may raise interest rates several times this year to try to slow down the inflation.  No matter what they decide to do, just prepare for more shortages, price increases all across the board on all goods and services, and the devaluation of the dollar.  The purchasing power of the USD is shrinking rapidly.  

Our motto on everything we read online is do this: Question everything, analyze it, and always do your own research to reach your own conclusions to "Be In The Know™" Breaie® 

Article written and contributed by Brenda

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Cited Sources:

https://www.marketwatch.com/story/u-s-trade-deficit-in-goods-top-1-trillion-in-2021-for-first-time-ever-11643205222

https://tradingeconomics.com/united-states/unemployment-rate

https://www.thebalance.com/jobs-report-monthly-employment-growth-statistics-3305732

https://www.foxbusiness.com/economy/federal-reserve-fight-inflation-interest-rate-hikes


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