A Professional Glimpse Into What To Expect From The S&P 500 And Federal Reserve Right Now

The month of April saw a spike in inflation rates to 4.2%, the highest 12-month increase since September 2008. In May, inflation rose by 5%, beating the 4.7% that economists had projected. While the higher than expected print caught some economists by surprise, several had warned that recent actions by the government and the Federal Reserve would cause price increases.

Government COVID-19 Interventions

The Federal government has issued around $10 trillion in COVID-19 relief programs since March 2020. These programs include the $2.2 trillion CARES program issued in March 2020, a $900 billion program issued in December 2020, and three relief programs offered under the Biden administration amounting to over $6 trillion.

How The Fed Can Respond To Growing Inflation

There are several tools that the Fed can deploy to manage inflation before it runs out of control. These include yield curve management and strong policy guidance. However, these tools can come at a cost and can be deemed ineffective if not applied correctly.

The Federal Reserve has contended with higher inflation in recent times, but the recent unexpected price increases have prompted the finance regulator to change stance. Over the past year, the Fed has kept a blind eye on inflation signs and maintained low-interest rates and a loose monetary policy.