Rising Prices Hit Businesses and Consumers in the Budget

In addition to the coronavirus pandemic, inflation has been the topic most discussed in the news. Rapidly rising prices are causing economic hardship for Americans, including business owners who are taking a hit to their budget when buying supplies.

Although most people believe the federal government should do something to help reign in inflation, economic specialists are concerned the solution—raising interest rates—could do more harm than good, CNN reports.

According to the January consumer price index reading, overall prices jumped 7.5% during the last year, the fastest pace in nearly 40 years. The sharp increase has led to calls for the Federal Reserve to take severe action, such as raising interest rates a half-percentage-point, it’s first since 2000.

However, some economists believe this action would be a mistake as slowing the economy could lead to job losses at a time when more jobs are needed. Even with the best year of economic growth and job gains in decades, the economy still has 2.5 million fewer jobs than it did heading into the pandemic. Employers need to continue hiring and bring the current labor shortage to an end. But raising interest rates leads to a slower economy and fewer job gains. These job losses often include the lowest income segment of the workforce, such as cleaning staff and other frontline workers.

“The people you’re drafting into the fight against inflation when you raise interest rates and slow the economy are the most vulnerable,” said Robert Reich, a former U.S. Labor Secretary and a professor of public policy at the University of California, Berkeley. “The purpose of raising interest rates is to take the air out of the sails of the economy. If it works, you are by definition going to have fewer jobs. Even small increases in interest rates, if they have the desired effect, will cause job losses and wage losses.”