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The Plan: How the Federal Reserve is Fighting Inflation

Inflation in the United States is reaching an all-time high. Food, gas, shipping, and utilities are becoming more expensive despite the job market picking back up after nearly two years of decline. So, what is the Federal Reserve doing about it?

What Is the Federal Reserve?

The Federal Reserve, also called the Fed, is the government agency in charge of the economy. The Fed monitors risks to the economy, exercises monetary policy to promote stability, and manages the country's debts and potential investments.

In simpler terms, the Fed is the financial advisor for the entire country. Federal Reserve board members are financial experts who have studied economics and monetary policy and research. They are the ones who monitor and set inflation rates.

In some cases, the Fed will increase inflation to boost another sector of the economy. At other times it creates strategies to avoid high inflation rates that could harm the economy and the consumer.

To Bail Out or Not to Bail Out

When we hear the term "bail out," we think of giving money to a business or corporation to help them stabilize during financial problems. However, there is more than one way to issue a bailout for the economy.

The central bank (the nation's banking account) issued several measures to prop up the crumbling economy during the pandemic. From bonds to freezing inflation rates, the Fed has a lot of power over what can be done during an economic crisis.

Now that the economy is slowly improving, the Fed will be rolling back some of its COVID mitigation strategies. The plan? Winding down the bond purchasing program.

Why Bonds are Important

Stocks represent the value of manufacturers and companies that sell consumer products or materials that make up consumer products. Bonds, however, set the tone for how much loans and mortgages cost.

During the pandemic, the central bank started buying bonds to promote borrowing and help people survive an economy in flux. By keeping borrowing costs low, consumers could get loans to bridge the gap while the virus raged through their communities.

Now that inflation is increasing rapidly, the Fed will stop buying bonds. Typically, when inflation rises, the Fed will raise interest rates to combat spending, but there are concerns that doing so would hurt the economy more than it would help.

The other part of the plan is patience. It might not sound like much, but the Fed can detect red flags before they become a full-blown economic crisis by closely observing the economy. Fazing out bond-buying could give the economy what it needs to recover, but there's not much else the Fed can do quickly.

The economy is a big, slow beast that covers a lot of ground but takes ages to move in a positive direction. Large-scale changes could jeopardize stability even more, so the best way to move forward is with caution.

If You Need Debt Relief Now

Many Americans are desperate for relief as stimulus checks, severance pay, and unemployment funds begin to run dry. Student loans are about to start back up, and the cost of necessities has doubled and even tripled in parts of the U.S.

If you are struggling to pay off debt or loans, you may be able to pursue bankruptcy or another debt relief solution. Contact Buchalter & Pelphrey Attorneys At Law for more information.