When the Federal Open Market Committee (FOMC) met on June 13-14, the Fed decided to stop its aggressive approach of rising interest rates. Over the last 15 months, the US Federal Reserve has raised borrowing prices ten times in a row, raising interest rates from near zero to 5.00%-5.25%. The quick rise was part of authorities’ efforts to control the country’s unsustainable inflation.
While Fed Chair Jerome Powell claims the Fed has “covered a lot of ground,” he cautioned the press that “the full effects of our tightening have yet to be felt.” Raising interest rates is a blunt instrument with “uncertain lags with which monetary policy affects the economy.”
Why is inflation so high in certain places of the United States?
Part of the reason for the aforementioned lags is that not every sector of the economy is reacting equally to rate hikes. In addition, other forces are at work. One of these is the composition of the country. The United States is a huge and diverse country, and each region has its own economy with dynamics that are unique to that region.
The Federal Reserve aspires to reduce inflation to 2%, which has already occurred in the Minneapolis-St. Paul and Honolulu metropolitan areas. However, Phoenix and Tampa have rates above 7%, and Miami has a rate of 9%. So, what variables are driving such significant inflation in the latter metro areas?