Significant Policies Have the Federal Reserve Enacted to Control Inflation from the Pandemic

Abstract

Since April 2021, headline and core inflation figures in the United States have been above target. The factors behind the price spikes are difficult to clarify and have been the subject of debate among policymakers and academics. Lowering interest rates makes borrowing cheaper, which potentially stimulates demand and causes inflation. Conversely, raising interest rates can decrease demand and mitigate inflation. Tight monetary policy helps curb inflation. The Federal Reserve has increased interest rates 11 times since March 2022, bringing the federal funds rate to its highest level since 2001. As interest rates rise, so do borrowing costs. Higher interest rates not only increase borrowing costs but also make saving more attractive, as individuals can earn higher returns on their savings. This change in behavior can result in less investment and consumer expenditure, further dampening economic growth. Therefore, Federal reserve need to make corresponding and correct responses to better deal with inflation. This paper will mainly discuss what economic policies the Federal Reserve has adopted in response to the inflation caused by the epidemic and will actually look at whether or not these monetary policies have actually curbed inflation.