A major factor driving the Fed to raise interest rates as aggressively as they did in June is that inflation expectations are rising. While that may make sense given the recent inflationary pressures, it’s more concerning. Many of the factors driving inflation today could be considered transitory, such as supply chain challenges or commodity shortage with the Russia-Ukraine war. But higher inflationary expectations today, can lead to higher inflation down the road as consumer except the higher prices, preventing demand destruction from pulling down prices, and prompting workers to request higher wages.

Source: Federal Reserve of Dallas

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