Majority of Economists Believe Inflation Will Rise Higher Than Expected

April 5, 2022 Topic: Inflation Region: North America Blog Brand: Politics Tags: Housing PricesFederal ReserveInterest RatesRecession

Majority of Economists Believe Inflation Will Rise Higher Than Expected

The Federal Reserve is expected to raise interest rates several times throughout 2022 in an attempt to head off inflation, but it may not work.


Due to surging prices on everything from housing and used cars to groceries and utility bills, millions of Americans have been scrambling to navigate their way through unrelenting high-inflationary pressures.

While many Americans might feel that the worst is behind them, some of the nation’s top economists are contending the opposite.


‘Tax on Households’

According to Bankrate’s First-Quarter Economic Indicator poll, 53 percent of experts said that inflation will likely rise higher than expected over the next twelve to eighteen months. Meanwhile, only 21 percent are expecting inflation to climb at a slower pace, and 26 percent are saying it should evolve as expected.

According to a separate Bankrate poll from last month, 93 percent of American consumers have noticed higher prices on items that they purchase. Almost 75 percent have seen their budgets shrink.

“Already established historically high inflation acts as a tax on households,” Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief, said in a statement. “Aside from the obvious geopolitical implications, Russia’s invasion of Ukraine has injected significant downside risks for the economy and upside risks for inflation, with so-called stagflation and recession as possible outcomes. This at a time when consumers are already indicating that sentiment has been adversely affected by some of the worst inflation many have seen in their lifetimes.”

Increasingly Hawkish Fed

In recent weeks, an increasingly hawkish Federal Reserve has driven much of that stagflation and recession talk. The Fed recently raised interest rates for the first time since 2018.

With the federal funds rate now at 0.25 to 0.50 percent, the long-awaited move marks the end of the Fed’s easy-money policy amid the two-year-long coronavirus pandemic. The Fed has also scheduled rate increases at each of the six remaining meetings this year, which would point to a consensus funds rate of 1.9 percent by year’s end. However, according to Reuters, even more aggressive rate hikes could be in the offing.

“A source close to JPMorgan Chase … said he was now predicting 12 to 15 rate hikes—or a cumulative 300 to 375 basis points—in this hiking cycle,” the news agency wrote.

Ryan Sweet, senior director of economic research at Moody’s Analytics, told Bankrate that “the Fed appears willing to err on the side of doing too much to bring inflation down.”

“They could be faced with Hobson’s choice next year as stagflation risks increase,” he said. “The Fed may have to choose between pushing the economy into a recession to avoid stagflation or face a deeper recession if they let stagflation occur.”

Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.