Opinion: The Effects of Rampant Inflation and How to Address It

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Inflation is currently the worse that it has been in the past 30 years. The partial cause of this rampant inflation can be attributed to the Federal Reserve's inaction. However, a combination of government stimulus, a supply chain shortage, and rising wages are causing inflation to go above the Federal Reserve’s 2% target. 

Inflation is costly for everyone in the economy and especially low income individuals as it can be seen as a universal taxation. The only way to adapt to an increase in inflation is by investing your money. 

Signs of inflation have already been acknowledged a few months ago, but the Federal Reserve did nothing to address it and still kept interest rates at near zero levels because of they wanted to decrease unemployement. Their low interest rates postition had adverse consequences because it causes companies and individuals to keep on investing and spending in an economy that is already on the rise which is leading to higher prices and inflation.  Additionally, the recent supply chain bottlenecks are causing companies to have shortages in goods which is leading to increase in prices.

I believe there are two ways that the Federal Reserve can address this problem. They can either do nothing or increase short term interest rates.

The first option would be to do nothing which would cause inflation to continue to increase, but it would also allow the economy to continue to grow. This would benefit the government as it will be easier for them to pay back their debt, but it would hurt consumers as it will make more money out of their paycheck.

The second option that the Federal Reserve could take is to stop bond buy backs because the buy backs are just fueling more inflation and economical growth as it puts more money into the economy. They can also increase the discount rate to discourage banks from loaning out more money to peopleHowever, this doesn't come without consequences. An increase in interest rates will lead to an increase in borrowing cost for the businesses. They will not invest as much and have lower profit margins which will cause an economic slowdown. Since wages are rising all around the nation, companies will lay off workers to compensate for lower revenue and higher salary expenses.

In the end, there is a fine line that the Fed will need to walk on.

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