The Daily How Expecting Inflation Can Actually Create More Inflation
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Jul 28, 2022 
Jeanna Smialek, a New York Times correspondent specializing in the Federal Reserve and the economy, dives into the complex world of inflation. She discusses how rising interest rates aim to curb consumer spending while highlighting the psychological aspect of inflation expectations. Smialek explains how consumer beliefs can create a self-fulfilling prophecy, impacting spending habits and demand. She emphasizes the importance of public perception and adaptive behaviors in the face of rising prices, offering a compelling look at the interplay between economics and everyday life.
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Self-Fulfilling Inflation
- If consumers believe inflation is permanent, they might change their behavior, thus making it a self-fulfilling prophecy.
- The Federal Reserve aims to prevent this by assuring the public that inflation is temporary.
The Heartbreak Analogy
- Smialek uses a therapist-patient analogy to explain self-fulfilling prophecies.
- If a heartbroken patient believes they'll be single forever, they are less likely to actively seek new relationships, thus remaining single.
Combatting Inflation Through Spending
- Consumers can combat inflation by cutting back on spending.
- Refusing to pay inflated prices signals to businesses that consumers won't tolerate excessive price hikes.