The Federal Reserve is moving full steam ahead on the monetary policy tightening front. The central bank strategy is to cool the economy, hoping that “tighter” money will reduce demand for goods and services, and thus reduce inflation. Specifically the Fed is quickly raising the benchmark short-term interest rate while also selling bonds for cash.
April’s pricing data did little to assuage concerns about inflation. Both the Consumer and Producer Price Indexes came in above expectations, with respective 12-month advances of 8.3% and 11.0%. The metrics showed significant increases in food, energy, and rental apartment prices.
The Federal Reserve raised the benchmark short-term interest rate by one-half a percent (“50 basis points”) at this month’s Federal Open Market Committee (FOMC) meeting. It was the first half-percentage-point hike in 22 years, and another sign that the central bank is playing catch up in its attempt to combat inflation.
While the U.S. economy contracted by an annualized rate of 1.4% in the first quarter, some other economic indicators have been positive. The headline negative number was a stark contrast to the 6.9% increase in gross domestic product recorded in the fourth quarter and worse than the consensus expectation calling for growth of around 1.0%.
The maximum contribution to a health savings account and certain related benchmarks will be sharply higher next year, reflecting inflation-linked adjustments.
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