Americans are feeling the pinch as the U.S. experiences record high inflation.
The inflation rate reached 8.6% last month, the highest level in 40 years. Food and energy prices, in particular, have skyrocketed forcing the government to take action. The Federal Reserve is raising interest rates to bring down demand and this week President Joe Biden called on Congress to pause federal gas taxes for three months.
Tassos Malliaris, a professor of economics at Loyola University Chicago, says high inflation largely has to do with a growing U.S. economy and the war in Ukraine.
“So the 8, almost 9% inflation, I can break it down for you that 6% is because the U.S. economy is very robust and growing very quickly, and the other 3% comes from the global markets,” said Malliaris.
As the cost of essential goods like food and transportation increases, many households are struggling to make ends meet.
“One of the immediate impacts is that lower income families will have less discretionary income to use to actually secure items that they need for everyday living,” said Christian Nwasike, a Chicago financial advisor and chair of the Association of African American Financial Advisors. “In times of inflation, we already know it saps up any discretionary income that is found in our households, and those discretionary incomes are used to plan vacations, plan for retirement, save for a rainy day and we have families actually tapping into those reserves just to survive today.”
To address inflation, the Federal Reserve has raised interest rates three times since March, and it’s likely to do so again next month. Raising interest rates is intended to slow down demand and therefore bring down inflation, but economists warn it could lead to higher unemployment and a recession.
“The odds at this point are about 50%,” said Malliaris. “In view of the fact that the Federal Reserve is late in acting. Instead of moving gradually, a quarter percent very, very slowly, they are doing what we have all witnessed, very radical 75 basis point changes and we anticipate for the next two or three meetings to be at least that much, maybe they will adjust it depending what the situation is. In view of the size of those increases the probability of a recession increases.”
Nwasike recommends families seek a financial advisor to address any concerns as we experience high inflation and possibly head towards a recession. He says many will offer free consultations.