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Federal Reserve Response to Inflation- Calculation and Economic Impact of Inflation

The current inflation rate in the United States is 9.1 percent.

Inflation

Inflation is a situation when the purchasing power of a currency decreases over time. This decreasing purchasing power can be reflected in the increase in average price level of the goods and services in the economy of the country during the same period. Inflation is usually expressed in percentages, and the increase in costs means that the US dollar purchases fewer goods than it did during the past quarters.

Inflation Calculation

Inflation is mainly calculated by measuring the changing value of the currency over time, which is reflected in the changing costs of the goods and services people pay for. Calculating the inflation rates enables people to see how fast costs increase over a certain period. Inflation can also be calculated by location, price index, and index numbers.

Economic Impact of Inflation

Inflation impacts different economies in many ways, both good and bad. If inflation causes the US dollar to fall, it may have a positive impact on exporters because it will make the goods and services more affordable when compared to other country’s currencies. On the other hand, inflation can negatively impact importers because the goods and services produced in foreign countries will become more expensive.

Federal Reserve Response to Inflation

The Federal Reserve, the US Central Bank, has set monetary policy with tools that mainly attempt to decrease and stabilize inflation. This is widely accomplished through increasing or decreasing its interest rate, which impacts both the fees people need to pay on their loans and mortgages, and the amount of money people receive on their savings.