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This resulted in a drastic—some may even say excessive—government stimulus. Rising inflation and a crucial error by the Federal Reserve caused our economy to potentially enter an unsolvable catastrophe as a consequence.

The Federal Reserve made a single, crucial error in judgment that has now rendered it difficult for the U.S. economy to avoid entering a severe recession with high and sustained inflation that would permanently harm the economy.

Years of the Federal Reserve's belief that inflation was temporary

The Fed did nothing because it believed that increasing inflation was a temporary situation that will resolve itself spontaneously over time. They sealed the destiny of creating the economic situation we are in today by failing to raise interest rates when inflation started to increase years earlier. Due to its inactivity, the Federal Reserve found itself in a situation where its responses were unquestionably too little, too late.

The Federal Reserve missed its opportunity to successfully halt inflation from increasing and, more crucially, it permanently sealed the agony and misery that the impending recession would inflict on the American economy and its people.

Never in history has the Federal Reserve successfully lowered inflation without also raising its benchmark interest rates to at least match the current rate of inflation. when inflation peaked at 3% or 4% and started to increase. In 2020, the pandemic and recession caused average inflationary pressures to be 1.2%. Inflation peaked in March 2021 at 2.6% after starting the year at 1.4% in January.

The Federal Reserve's decision to act and start raising rates without continuing to insist that inflation was temporary might have had a significant effect. The Federal Reserve chose not to act. They would have had a significant effect merely by raising interest rates to 2% if they had taken action at this time and started gradually raising the artificially low interest rates, which had been fixed between 0 and 14%.

When inflation reached 4.2% in April 2021, the Federal Reserve did nothing and kept interest rates artificially low. Inflation reached 5% by May 2021 and 5.4% in June, but the Federal Reserve did nothing. In actuality, the Federal Reserve did nothing and maintained artificially low interest rates at 02 14% despite the fact that inflation increased to 6.2% in October, 6.8% in November, and 7% in December.

Inflation had reached 8 12% by the time the Federal Reserve raised interest rates for the first time in March 2022. At this point, the Federal Reserve would need to increase rates to at least 8% in order to have any long-lasting influence on decreasing inflation.

It is evident that the early warning indications of growing inflation in 2021 indicated systemic increase by the first quarter, at which time the Federal Reserve should have taken action but did not. His major error in judgment—that inflation was temporary—was what caused the Federal Reserve to remain inactive until it was too late.

The Federal Reserve is now working to lower inflation and interest rates that cannot be maintained for an extended length of time. If interest rates were hiked from the current level of 3% to 8% today, with the national debt well above 120% of GDP, the annual cost of servicing the national debt would increase by $1.5 trillion.

To sum up

By failing to act when they might have had a significant and immediate influence on inflation, the Federal Reserve clearly dug itself into a position. Instead of acting, they waited as interest rates spiraled out of control.

The Federal Reserve's inactivity will have repercussions in the years to come, most likely leading to a severe and prolonged recession and, in the best case scenario, persistent and high inflation exceeding 4%.

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