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As the Federal Reserve tightens its monetary policy, the risk of stagflation increases

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The Federal Reserve is raising interest rates in an attempt to defuse an explosive year of price inflation. But global forces can offset the effects of tightening monetary policy and keep inflation high.

Some observers believe that The U.S. government may have misperceived the threat of inflation. During the pandemic, Uncle Sam sprayed historic sums of money to blunt the widespread economic damage. Analysts say the stimulus has brought strong savings to households. This was followed by a boom in demand for durable goods.

This surge in demand occurred when global supply chains stopped and then a steady onslaught of inflation began. In March 2022, prices in all categories rose to historic levels – by 8.5% compared to last year. And investors believe that the price increase is not over New York Federal Reserve Survey.

“The only way to break the back of inflation that is getting out of control is through a very tight monetary policy,” said Richard Fisher, a former president of the Dallas Federal Reserve. “It slows everything down because everything is getting more expensive.”

However, today’s inflation is not developing as in the recent past. From 1965 to 1982, inflation rose sharply, sometimes reaching double digits. In 1979, the central bank under chairman Paul Walker began a tough cycle that resulted in interest rates of nearly 20%.

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