The Federal Reserve needs to break an addiction that both companies and consumers are feeding. The more you raise interest rates, the more people feel like they don't have the wherewithal to spend all of this money. And how do you compete? You lower your prices or you don't put them up as quickly. That is really what the Fed is hoping for. They are hoping to see these profit margin shrink as a sign that it's working.
In the struggle to control inflation, the Federal Reserve has raised interest rates five times already this year.
But those efforts can be blunted if companies keep raising prices regardless. And one industry has illustrated that difficulty particularly starkly: the car market.
Guest: Jeanna Smialek, a federal reserve and economy reporter for The New York Times.
Background reading:
- Many companies have been able to raise prices beyond their own increasing costs over the past two years, swelling their profitability but also exacerbating inflation. That is especially true in the car market.
- Inflation stayed far above the Federal Reserve’s goal in August, as prices climbed more quickly than economists expected.
For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday.