Back
~
2
min read
· Posted on
February 21, 2024

OH BOY: After *that* inflation data, the US Federal Reserve is looking to raise interest rates

In the US, it was announced that CPI rose 6.8% in November - making it the largest increase in CPI since June 1982.

What's the key learning?

  • After the largest increase in CPI since June 1982, the US Federal Reserve will announce a new policy which is likely to lead to two to three interest rate hikes in 2022
  • When interest rates are high = inflation is low, and vice versa
  • So, central banks will likely hike rates in the short-term to nudge inflation down

Background: In the US, it was announced that CPI rose 6.8% in November. That means a 'basket' of goods and services from November 2021 increased by 6.8% compares to November 2020. Ouch!

What happened: This is the largest increase in CPI since June 1982. And it's a key indicator that inflation is getting out of hand.

What else: Now, the US Federal Reserve will announce a new policy which is likely to lead to two to three interest rate hikes in 2022...and another three to four in 2023. And this could be a sign of things to come in Oz.

So what's the key learning?

💡One of the key jobs of a Federal Reserve or Central Bank is to keep price growth stable. That's why we have inflation 'targets' - ya know the aim to keep price growth at around 2 to 3% 'over time'.

💡Because generally, interest rates and inflation have an inverse relationship. When interest rates are high = inflation is low, and vice versa.

💡This is because when interest rates are low, people can borrow more money, which means they have more money to spend. This causes the economy to grow and inflation to rise. So, central banks will likely hike rates in the short-term to nudge inflation down.

Ready to win at money?

Sign up for Flux and join 100,000 members of the Flux family

A button to App StoreGoogle Play store button
Excellent  4.9 out of 5
Star rating