Inflation is a huge problem for everyone, especially the Federal Reserve, so how are they planning to tackle it–now that it’s at a 30 year high?

How Did We Get Here

During the pandemic, we have had the loss of nearly 114 million jobs in America. Our country’s citizens have gone on a massive spending spree. This spree, spawning from COVID restrictions relaxing, has retail sales rising 1.7%. The new freedom has some people forgetting their responsibility and that caused a massive imbalance in our economy. The biggest contributors to the 6.2% inflation rise were housing, transportation, and food. The government has had to pay for issues like infrastructure, environmental repairs, COVID, and other national problems. In total, the government has spent $22.39 trillion on these bills and repairs, resulting in mounds of national debt, which leads to inflation. Inflation is at a 30 year high and a large contributor to this issue is COVID relief checks and stimulus packages. Inflation is the value of money going down, while prices go up. This has resulted in prices of basic items rising such as groceries and gas. This increase in prices is detrimental to all Americans, especially those in low-income families who are already struggling through the pandemic.

How Does the Federal Reserve Plan on Fixing this Issue?

To fix the inflation issue, the Federal Reserve is implementing a tactic determined to prevent a second 2008 Financial Crisis called the ‘Bond Taper’. This strategy involves using the central bank to buy a mass of bonds, mortgage-backed securities, and other large purchases, in an attempt to calm the market and overload the economy using cheap bonds. Using this cheap credit also has some large detriments.

Risks of This Solution

While we, as a country, are in desperate need of relief from inflation, this system has many risks that need to be taken into consideration. When the market is finally stabilized, we will need to start phasing out the support. This can cause complications such as a spike in housing prices. If there is no proper communication between the Federal Reserve and the market, there can be mass sellouts of bonds and stocks. 

“The Fed needs to be resolute, and it needs to recognize that, if you keep using a tool after it is no longer effective, there is a real risk it could do damage to the economy.” Says Mohamed El-Eiran, President of Queens’ College, Cambridge, and chief economic adviser at Allianz, emphasizing the importance of transparency in the fed reserve. 

How This Affects the President

President Biden has been hard at work trying to aid in the solving of this problem. Unfortunately, because of the negative impact on working-class Americans, his approval rating has plummeted. In addition to mostly problems with the middle east, China, Russia, and other foreign affairs, the issues are piling onto Biden. Solving the inflation crisis will be a big step in the right direction and if we can put into place policies that will help prevent this in the future, his approval rating will surely rise.

Biden has a plan. He had the Department of Energy free up 50 million barrels of oil to greatly reduce energy costs. That is $96,500,000 worth of crude oil freed up.

“As we come out of an unprecedented global economic shutdown, oil supply has not kept up with demand, forcing working families and businesses to pay the price,” says Energy Secretary Jennifer Granholm, supporting this action. The oil release would ease prices for the average American, as well as expectantly lower the overall prices in the future.

Preventing this in the future

One big way to prevent future inflation is to make sure we only print money if we have that value of gold in Fort Knox. We can also not give as much money out in stimulus and relief packages. Instead, we should only give money to those absolutely in need like low-income families, the unemployed, and the elderly. Safe and smart financial practices in the government are the only way to fend off inflation.