Although the four-decade-high inflation rates of 2022 have subsided, inflation remains well above typical levels and continues to be a concern for the U.S. economy. While inflation has persisted, the Fed has remained focused on executing a so-called “soft landing” and bringing inflation under control without nudging the economy into recession.

The inflation that persists today started its increase in 2021, with the Consumer Price Index exceeding 4 percent in April 2021 for the first time since 2008. It peaked in June 2022 at 9.1 percent, the highest inflation rate since 1981. Driven by a combination of factors including rebounding consumer demand, record-setting federal stimulus spending, a white hot housing market and energy disruptions triggered by Russia’s invasion of Ukraine, rising inflation touched everything from food and energy to travel and shelter. People across the nation felt the cost-of-living pressure on their daily budgets, and the fast-rising price environment was unavoidable for American households and businesses.

To combat the rapid rise of inflation, the Federal Reserve took action, raising the federal funds rate 10 times between March 2022 and May 2023 by a total of 5 percentage points – the sharpest increase in more than 15 years. Raising the federal funds rate increases the cost of borrowing money, reducing demand from consumers to buy goods and services while making it costlier for businesses to expand. The rise in interest rates had the desired effect of slowing price growth, with the annual inflation rate dipping under 5 percent in April 2023. That remained well above the Fed’s target of 2 percent, however, and some categories experienced much higher inflation rates than others. Both housing and food and beverage inflation were 7.5 percent, while transportation was 0.2 percent and medical care was 1.1 percent.

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