The Self-Fulfilling Prophecy of Inflation Expectations

To fight historic levels of inflation, the Federal Reserve this week, once again, raised interest rates, its most powerful weapon against rising prices.

The move was intended to slow demand, but there was also a psychological factor: If consumers become convinced that inflation is a permanent feature of the economy, that might become a self-fulfilling prophecy.

Guest: Jeanna Smialek, a correspondent covering the Federal Reserve and the economy for The New York Times.

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Background reading: 

• The Federal Reserve has pushed up borrowing costs at the fastest pace in decades.
• The New York Times invited readers to share their thoughts about the price rises and asked how much more inflation they expected.

For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

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