April 18, 2022 — Inflation Hits Record Highs


US inflation rose again in March, up 8.5 percent year-over-year, the largest increase since December 1981.  It is the fifth month in a row inflation has hit a new 40-year high. The Fed raised rates last month by 0.25 percent and is expected to raise rates again multiple times this year to curb inflation. The Fed has come under criticism from politicians at not having acted soon enough. During the last year, and as late as January 2022, the Fed insisted inflation was transitory and didn’t warrant taking any action.

Fed Governor Lael Brainard spoke to the Wall Street Journal after the inflation numbers were released. She said the Fed’s most important task now is to get inflation under control. Rates will rise again at their policy meeting in May, and they will likely announce plans to shrink their balance sheet in June.

Brainard thinks inflation will return to 2 percent over time and is guardedly optimistic the recovery can be sustained as they bring inflation down to a soft landing, avoiding a recession.  She thinks the drop in federal stimulus and rising borrowing costs will bring demand down. Softening in demand could cool labor markets and ease price pressures. She believes businesses can reduce job openings without instituting layoffs. They are counting on inflation falling as supply chain problems ease and workers return to jobs. But there remains the wild card of the Russian invasion of Ukraine.