In this video I’m going to talk about what inflation is, what causes inflation, and how the feds recent decision to raise interest rates to combat inflation will affect you. Inflation in 2022 is the highest it has been in a long time and us inflation keeps getting higher. In order to decrease inflation, the fed recently raised interest rates. Gas prices have been sky rocketing as well. Jerome Powell, Federal Reserve Chair, said that for each $10 increase per barrel in crude oil prices increase inflation by .2%. According to the consumer price index at the end of January 2022 inflation rate was 7.4%. To make inflation worse in 2022 is the war in Ukraine. Recently to combat inflation in the USA the fed rate hike went up .25%. The interest rate hike impacts everything, including stocks in the stock market, bonds, mortgage rates, lending rates, credit cards, cost of living and much more. In this video I am going to go over all of this so you can prepare for the potential inflation crisis in 2022. I am also going to give you money tips to help you either take advantage of the fed interest rate hikes or how to avoid losing money. In this video inflation is explained as well as how does inflation work.
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If you have been out shopping for groceries, gas for your car, or other products recently, you may have noticed that things have gotten a lot more expensive lately. This is due to inflation and it’s at an all time high! So today we are going to talk about inflation. What is inflation? What causes inflation? And how does the feds recent decision to raise interest rates to combat inflation affect you. So, let’s jump right in!
What is inflation? Simply put, inflation is the rising prices of products and services in the economy. When prices go up, each dollar has less purchasing power, so essentially one can buy less products and services with each dollar resulting in a decrease of purchasing power. The loss of purchasing power affects the cost of living for all of us, which in the end leads to a slowdown in economic growth. Many economists believe that sustained inflation occurs when a nation's money supply growth surpasses the growth of the economy. Sometimes, a certain amount of inflation can be viewed as good for the economy, especially if it is working to boost consumer demand and driving economic growth or keeping deflation in check. In fact, most years inflation is around 1 to 2 percent.
So, what is causing such high inflation in the economy right now? Well, there are many reasons. Some of these include, supply chain disruptions as a result of the pandemic, increases in production costs, and growing consumer demand. I am sure you have noticed the sky rocketing gas prices. In March of 2022 Federal Reserve Chair Jerome Powell said in his semiannual testimony in front of the US Senate Banking Committee, that as a rule of thumb, every $10 per barrel increase in the price of crude oil raises inflation by .2 percent and sets back economic growth .1 percent. You can look at the graph here of crude oil just over the last 3 months, basically the beginning of the year to see how much the price have increased. This is just one of the many commodities that are skyrocketing.
Another big reason is the increase in money supply. The federal government printed large amounts of money to pay for pandemic relief programs such as the $1.9 trillion American rescue plan act of 2021. Remember, an increase in money supply reduces consumers purchasing power. According to the U.S. Bureau of Labor and Statistics the Consumer Price Index for All Urban Consumers (CPI-U) was up by 7.5% in the 12-month period ending January 2022, the largest 12-month increase since the period ending June of 1982. In order to combat inflation, the fed recently announced a .25% hike in interest rates in hopes of shrinking consumer demand. This is the first interest rate hike since 2018. The fed has indicated that this is just the first-rate hike that they have planned for this year.
The effects of rising interest rates can impact consumers in many ways. You might find that you are directly impacted by the fed’s decision to raise interest rates, so let’s talk a little bit about what interest rates are, and how they affect consumers and their spending habits. Interest rates are essentially the interest rate that banks charge to lend money to other banks. This rate affects everything from your interest rate on your car loan, your mortgage, credit card debt, the interest rate that your bank gives you on your savings account and many other areas of your life.
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