Who enabled the government to print money during the pandemic? Who’s job is it to deal with inflation? The answer might surprise you because it’s not the government. The Federal Reserve is the central bank of America and operates independently from the rest of the government to maintain a stable economy. They have two simple objectives, maximize employment and minimize inflation. They can buy bonds from the treasury to inject cash into the economy (Hopper, 2017) and set the rate at which banks lend to each other, determining the national rates for mortgages, car payments, business loans, credit cards, and more.
When economic hardship is on the horizon, like in March 2020 during the onset of the pandemic, the Federal Reserve supports the U.S. economy by buying treasury and municipal bonds, providing cash for governments, and lowering interest rates to make lending and credit more affordable for Americans. This eases the impacts of recessions and allows the government to provide sweeping stimulus. Since January 2020, the US has printed nearly 80% of all US dollars in existence ($4.0192 trillion to $20.0831 trillion) (Levi, 2021).
Now, with inflation at its highest levels since 1980, 8.3% in August 2022 (Lynch, 2022), the Federal Reserve is being equally aggressive in selling its treasury bonds, raising interest rates, and tightening the money supply while trying not to again risk recession and unemployment. I interviewed students at Walter Payton College Preparatory to see what they wanted to learn about monetary policy. Two major questions arose: “When is inflation going to decrease? How do interest rates affect students and their families?”
Next, I sat down with Craig Slack, the Chief Investment Officer of the City of Chicago who manages and invests $10.5 billion of our taxpayer dollars to see how inflation affects youth in our city. He recommends that students pay attention to interest rates as the Federal Reserve increases them because there are many ways to take advantage as a consumer (Slack, 2022). The rates of return for certificates of deposit and government bonds are the highest in decades, so now could be the time to open a certificate of deposit and lock in an annual return on your money. Current rates for both lending and saving are as high as 5% (Shilling, 2023). On the flip side, interest rates increase the same for lenders. The Federal Reserve aims for rates to reach 6% (Bolingbroke, 2023) within the next few years to really curtail inflation. That may make your interest rates on that car loan or small business loan even higher.
List of sources and interviewees: Craig Slack, Student of Walter Payton College Prep