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The Federal Reserve keeps raising interest rates in hopes it will stabilize the economy – but it isn’t working.
The extremely high prices Americans are facing is called “inflation.” Higher interest rates are supposed to help, but if they don’t we could potentially be headed toward a “stagflation” economy. What is this and how could it affect us?
“Stagflation” is a consistently inflated economy – meaning that high prices and usually high unemployment last for a long time. Though unemployment has been dropping to pre-pandemic levels, wages still aren’t competing with current prices, so stagflation is a possibility.
This isn't the first time America has experienced stagflation. And last time wasn't pretty, especially for low-income families.
In the 1970s, America went through a period of stagflation that caused high prices and major shortages of essential goods. The Federal Reserve’s raising of interest rates didn’t help – very similar to now.
Luckily, we currently aren’t experiencing the double-digit inflation rate we did back then. As of 2022, the inflation rate is about 8% – a 40-year record high, but still better than the stagflation era's 14% rate!
High prices aren’t improving, and low unemployment isn’t helping either. The possibility of stagflation would be horrible for most of us, and especially those who are barely keeping up now. Smart budgeters should keep this possibility in mind as they plan for the near future.