Many top analysts are casting doubt that the Fed will be able to rein in soaring inflation. They are also unsure that aggressive tightening could help the regulator push consumer prices to the target level. Besides, monetary tightening may backfire. This is why this policy tool is rather controversial.
Currently, runaway inflation is undoubtedly one of the main problems in the US. Consumers have already voiced discontent with significant price increases for many goods. Therefore, the government has to act promptly, hurrying the Fed to come up with a plan. Recently, Fed Chairman Jerome Powell expressed a strong commitment to stick to aggressive monetary policy. He pledged that he and his colleagues would keep raising interest rates until they are confident that inflation is under control. Powell stressed the interest rate should reach a level restraining economic activity and remain at it for some time. It will help slow down the uncontrolled growth of consumer prices.
However, analysts are warning that at the moment, an aggressive interest rate hike may worsen the situation. Perhaps it is better now to impose restrictions on budget spending in order to avoid a surge in public debt and inflation expectations. Market strategists believe that an increase in key rates will not be enough because inflation has been mainly triggered by an uptick in budget spending due to the coronavirus crisis.
