Why are My Clothes so Expensive!?
- On the Money Magazine
- Jul 16
- 2 min read
Kavin Ramasamy , Whitney M. Young Magnet High School, Fall 2024
Why are My Clothes so Expensive!?
How many of you feel like prices have been out of control recently? According to Joseph Dai, a high schooler, “My gas and food prices have been high recently. I’ve noticed that my spending patterns over the past few months have been increasing.” Though it may seem that the government has been purposely raising prices, there lies an intricate system of economics. Firstly, who and what causes prices to increase? The demand and supply for goods directly affect inflation, depending on a decrease or increase in supply and demand, leading to an increase or decrease in the price level. We also see that governments and banks have control over inflation. While the government controls fiscal policy, which revolves around the federal budget, the Federal Reserve Bank ("Fed") controls monetary policy, or money-related things. To control prices, the Fed sets the Federal Funds rate, the interest rate banks charge to other institutions for borrowing cash. For example, “In 1964, inflation measured a little more than 1 percent per year. It had been in this vicinity over the preceding six years. Inflation began ratcheting upward in the mid-1960s and reached more than 14 percent in 1980.” It eventually declined to average only 3.5 percent in the latter half of the 1980s.” (Federal Reserve History, 2013). This decline in inflation resulted from the Federal Reserve Bank’s decision to increase the Federal Fund’s Rate. Though this decision negatively impacted GDP, it ultimately ended the years of high inflation and recession. As policymakers weigh their options, they must balance the need for continued growth of Gross Domestic Product (GDP), a measure of spending within the economy, while addressing inflationary pressures and the unemployment rate.
According to the Phillips Curve, inflation and unemployment are inversely related, meaning that an increase in inflation will lead to a decrease in the unemployment rate (Federal Reserve History, 2013). In 2024, some advocates like PolicyLink's Angela Blackwell, were advocating for the Federal Reserve to prioritize focusing on reducing unemployment overall as well as among minority populations. “While overall unemployment is down to 5.3 percent, it is still 9.1 percent for Blacks and 6.8 percent for Latinos” (Blackwell, 2024). Arguments regarding unemployment support a decrease in interest rates to stimulate economic activity. In the case of a recession, we will see increased unemployment and falling prices due to the overall lowering of demand for goods and services. David Wessel, senior fellow at Brookings, says, “Inflation has come down and is gradually approaching the 2% target, and the labor market is cooling off.” (2024) Lowering interest rates could provide a stimulus to the economy, increasing the GDP and preventing higher unemployment.
It may be confusing why the Fed decides to raise or lower the interest rate. However, while monitoring numerous economic indicators, such as GDP, inflation, and the unemployment rate, the Fed makes decisions according to its “dual mandate” to support its “goals of maximum employment, stable prices and moderate long-term interest rates" (Steelman, 2011).
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