Richard Russell, a ground service agent, intentionally crashed a plane from Seattle-Tacoma International Airport, causing despair among pilots. Despite rising incomes, people like Russell struggle to keep up with the soaring cost of living.
Car prices have remained high after the COVID-19 pandemic, with luxury SUV models fetching over USD 70,000 or higher with minimal alterations. This has led to American consumers reminiscing about the days when affordable, budget-friendly cars were available.
The cost of higher education in the U.S. continues to skyrocket, with annual tuition fees of around USD 80,000 for students attending prestigious private American universities. Insurance premiums are also rising, consuming a significant portion of middle-class household incomes. This year, insurance expenses are projected to increase by 5% to 10%. Rising premiums affect individual residents and have a substantial impact on corporate costs.
American insurance companies Aon and Willis Towers Watson reveal severe healthcare sector inflation, potentially leading to a 5.4% to 8.5% increase in medical costs for American employers by 2024. The current US economy is experiencing high prices relative to household income, largely due to high-interest rates. These rates are the cost of capital, which significantly influences the prices of goods and services.
The Federal Reserve’s decision to raise interest rates is based on inflation indicators, which predict a drop in inflation to 3.3% by the end of this year and 2.5% next year. The Fed’s target inflation level of 2% is expected to return by 2026, despite current monetary policy aiming to curb it. However, rate hikes are actually causing inflation and causing new hardships, highlighting the Fed’s struggle with traditional financial thinking.
If inflation rates were relatively stable, such monetary policy, including raising interest rates, would be considered reasonable. During that period, price fluctuations were largely dependent on monetary factors, and the sensitivity to monetary policy could play a crucial role in addressing this situation.
The world is experiencing a shift towards deglobalization, with American industries and businesses resetting their supply chains and relocating production facilities. This shift has led to variations in product quality, standards, and costs, as well as a range of transportation logistics. This has resulted in increased costs rather than reductions. The Federal Reserve’s mistake is that the costs generated by deglobalization and supply chain reset are rigid and cannot be addressed by monetary policy of interest rate adjustments.
If the Fed’s initial inflation target was 2%, it should be 4%, as half of this inflation is due to deglobalization and supply chain reset. Excessive intervention will only lead to more market distortions. This would be a perilous monetary strategy, as raising interest rates could affect businesses’ survival and consumption, potentially leading to stagflation in the U.S., affecting the Democrat government’s fortunes and potentially triggering a string of financial institution bankruptcies. The Fed’s commitment to raising rates could also negatively impact the Democrat government’s fortunes and the economy.
Fed Chairman Jerome Powell visited York, Pennsylvania, during a meeting to engage with local vendors. However, he faced ire from some, who complained about the loss of predictability due to inflation. Business owners like Julie Flinchbaugh Keene highlighted fuel costs, fertilizer prices, and wages as concerns. Cindy Steele, chief operating officer at Central Market, a facility for smaller retail vendors, stated that staffing is the biggest problem for vendors.
Jennifer Heasley, owner of a sauce shop, reported high-interest rates as a problem, leading to a drop in profit margins and price increases. Powell’s mood was affected by these complaints. The recent events highlight the ongoing challenges faced by businesses and the potential impact of the Fed’s mistakes on the economy.