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American consumers rated the economy of 2021 lower than the economy of 2020, according to an important annual Federal Reserve survey released Monday.
The Survey of Household Economics and Decisionmaking showed that 24% of respondents thought national economic conditions were good or excellent. According to CNBC, the figure marks a significant decrease from 50% in 2019 — as well as a slight decrease from 26% in 2020.
Although the unemployment rate skyrocketed from 3.5% to 14.7% between February 2020 and April 2020, lawmakers responded to COVID-19 and the lockdown-induced recession with an unprecedented level of federal aid. After unemployment rates largely recovered, inflation began to skyrocket beyond the Fed’s typical 2% benchmark — from 1.3% in December 2020 to 7.0% in December 2021.
According to the Fed’s survey, “the majority of parents received additional income in 2021 through the monthly Child Tax Credit.” While most higher-income parents saved the extra money, most lower-income parents spent it on “housing, items for their children, or food.” Indeed, inflation tends to fall most heavily upon poor families, which tend to devote a greater share of their budgets toward necessities.
The rise in prices since the beginning of 2021 has outpaced nominal increases in pay, producing a nearly 3% decline in real wages — stretching Americans’ budgets with respect to food, gas, housing, and other staples. A recent poll found that 94% of Americans were either “upset” or “concerned” about the impact of skyrocketing inflation, while a slim 28% approved of President Joe Biden’s approach toward managing price levels.
To curb rising price levels, the Fed increased interest rates by a half point earlier this month — which marked the largest rate hike since May 2000 and followed a quarter point increase from near-zero levels two months ago.
“Inflation is much too high,” Fed Chairman Jerome Powell said at a news conference. “We understand the hardship it is causing, and we’re moving expeditiously to bring it back down. We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.”
To address rising inflation, some Democratic lawmakers have called for price controls. House Speaker Nancy Pelosi (D-CA), for example, touted the “Consumer Fuel Price Gouging Prevention Act” — which would allow Biden to declare an “energy emergency” and give him the ability to regulate prices by preventing fuel companies from selling their products at prices deemed to be “unconscionably excessive” and “exploiting” such an emergency.
However, former Obama chief economist Jason Furman argued that such solutions would not actually solve inflation and possibly make future product shortages worse.
“You were quoted as saying corporate greed is a bad theory of inflation. Is that another way of saying that what Democrats are talking about is just a gimmick?” CBS host Margaret Brennan asked Furman.
“I think it’s pretty gimmicky, these price gouging bills, because, you know, he’s got a lot of extra demand. What happens when demand goes up? Prices go up,” Furman replied. “There’s an old saying the cure for high prices is high prices. That’s a little bit of a painful thing to deal with, but it’s what elicits the additional supply. It brings more producers into the market, and it’s what brings prices down and we need to let that process work. You try to interfere with it, you’re going to make things worse. We tried that in the seventies, it was a big failure. We shouldn’t be repeating it again.”
Furman also argued that most of the responsibility for combating inflation falls upon the Federal Reserve. He added that there was little Biden could do unilaterally, yet he credited Biden for taking action to address the supply chain crisis and release oil from the Strategic Petroleum Reserve.