4 reasons why high inflation has not passed

• The cost of living increased in 2021 and has not since returned to the Federal Reserve’s annual target of 2%.
  

• The Federal Reserve has battled high inflation for nearly four years now.
  

• Economists cite Federal Reserve rate cuts, rising oil prices, consumer sentiment and possible tariffs as holding back inflation.
  

From 2021, higher-than-normal inflation is affecting household budgets. What is keeping prices from returning to normal?

It’s been three years and 10 months since inflation, as measured by the consumer price index, started falling below the Federal Reserve’s 2% annual rate target in January. In the year Despite a dramatic reduction in inflation from its peak in 2022, the Fed still hasn’t completely tamped down inflation.

Economists have identified several powerful forces that are making inflation too hot for comfort. In his comments this week, Deutsche Bank macro strategist Henry Allen pointed to four factors that could prevent inflation from falling in the near term.

The Federal Reserve has cut its benchmark interest rate Three recent meetingsStarting in September. A higher federal funds rate raises interest rates on all types of loans to businesses and individuals, encourages borrowing and spending, and acts as sand in the engine of the U.S. economy.

The Fed lowered the rate by a percentage point to 4.25% from 4.5%—still high enough to be considered “restrictive” or a drag on the economy by Fed officials. But cutting the rate would introduce more money into the system, which could increase inflation, Allen wrote.

When President Donald Trump took office, he promised to impose heavy tariffs on America’s trading partners, especially China. According to economists, they can be businessmen Transferring most of the income tax to customersprice increase.

Moreover, the effect of a tariff may be more than a one-time price jump. As the pandemic has shown, costs on one commodity have a way of reverberating through the supply chain. For example, in Taiwan, when the Covid-19 restrictions disrupted the production of computer chips, prices of all kinds of things went up, surprising policymakers.

Like Austin Goolsbe, the federal president. The Reserve Bank of Chicago observed in an online Q&A this week:

“The supply chain is more integrated, complex and extended than we realize,” he said. “When there was a shortage of computer chips, it affected electronics, and electronics affected cars, and then cars affected shipping companies.”

The story continues