Deutsche Welle: Everyday life in the United States is becoming more difficult
According to IRNA, Deutsche Welle says that fuel prices in the United States rose by more than 17% in May. Fuel costs have more than doubled since a year ago. Food prices also increased by an average of 10% compared to last year.
It puts a lot of energy and food costs on people.
Inflation in the United States also rose in May. The consumer price index has surpassed forecasts by 8.6 percent, reaching its highest level since 1981.
Predicting interest rate increases
Experts believe that prices will continue to rise at a high level until the US Federal Reserve will have to raise interest rates again. The base interest rate is expected to rise 0.5 percent next week.
US President Joe Biden announced last month that fighting terrorism is a priority. Critics accuse him of recognizing the dangers of continued price increases too late and doing too little to counter them.
According to the latest polls, only 41% of Americans agree with Biden’s policies.
The US Federal Reserve has raised interest rates by half a percentage point in an unprecedented move over the past two decades. Effective curbing of inflation above 7% is the motivation for this action. In Europe, however, despite similar inflation, there is no change in interest rates in the outlook.
The US Federal Reserve announced earlier on May 4 that it would raise interest rates by half a percentage point to counter rising inflation in the country. Thus, this rate has now reached 0.75% in the United States. There has never been such an increase in interest rates in the United States in the last 22 years.
The last change in the base interest rate dates back to about a month and a half ago, during which the rate was increased from zero to 0.25 percent.
Reducing the sale of the country’s bonds and monetary base is another decision of the US Federal Reserve.
Inflation in the United States has been above 7% in recent months, unprecedented in the last 40 years. The continuation of this inflation and its negative consequences on different sections of the society can have negative effects on the votes of Joe Biden’s Democratic party in the mid-term congressional elections in November this year.
US Federal Reserve Chairman Jerome Powell told Senate senators last March that he would do everything in his power to curb inflation, even if it had a negative effect on the country’s economic prosperity.
Experts expect that interest rate hikes will not stop at the current level and that the central bank will raise this figure to 2.4% by the end of the year. For 2023, a figure equivalent to 3.5 percent is forecast.
Two different approaches on both sides of the ocean
Both raising interest rates and lowering the monetary base are considered contractionary policies that are commonly used in the face of rising inflation. The decline in interest rates is usually related to periods when inflation is low and the economy is not booming. Low interest rates are used in such situations to encourage investment and job creation, as well as more consumption and purchase by citizens.
Although inflation in the United States is now at the same level as in Europe, first of all, Europe is struggling with the relative economic downturn caused by the corona and the war in Ukraine. Another difference is that most of the inflation in the United States is due to energy prices and general necessities, while in Europe, despite inflation at a similar level (above 7%), these items are subject to average inflation of about 4%.
At present, the interest rate in the European Union is zero percent. The European Central Bank’s refusal to raise interest rates and its refusal to follow in the footsteps of the United States is also due to the fact that some EU member states, such as Italy, have high debts, and such an increase makes them fundamentally difficult to pay. It makes the euro monetary problem.
This is despite the fact that in the United States, despite its high debts, there is no such risk, and its economy consists of the economies of 27 countries with different levels of growth and development and is not associated with sometimes different domestic fiscal cultures and policies. Until further notice, base interest rates on both sides of the ocean will be even more different.