Americans struggle to make ends meet as inflation stays high: Fed official

A senior Federal Reserve official has warned that lower- and middle-income Americans are struggling to make ends meet, while the central bank may need to raise interest rates if inflation stays high

Lower- and middle-income Americans are finding it harder to manage household expenses as the war in Iran pushes up energy costs and adds to inflation pressures, a senior Federal Reserve official told the Financial Times.

 

Boston Federal Reserve President Susan Collins said the central bank may need to raise interest rates if inflation remains high as Americans struggle to make “ends meet”. She said businesses and households in the US north-east face growing pressure from prices, which have stayed above the Fed’s 2 per cent target for more than five years.

 

Lower-income households face growing pressure

 

The news report quoted Collins as saying that concerns about high prices came up regularly in her conversations with businesses.

 

 

She said lower- and moderate-income households were increasingly struggling to cover everyday expenses. Energy costs are proving particularly difficult, especially in the New England region.

 

New England is more dependent on heating oil during winter than many other parts of the US. Oil is also used as a backup fuel for electricity generation in the region, making it more vulnerable to higher crude prices.

 

Iran war adds to inflation worries

 

The conflict involving the US and Iran has added to inflation pressures this year. Oil shipments through the Strait of Hormuz have slowed sharply, pushing up energy costs. The increase in energy prices comes on top of pressure from US tariffs and heavy investment in artificial intelligence infrastructure.

 

Financial markets have become increasingly concerned that the Federal Reserve could struggle to bring inflation back to its 2 per cent target. US borrowing costs rose last month after the central bank decided against raising interest rates.

 

Collins keeps September rate hike on the table

 

Collins supported keeping interest rates unchanged in July. She said monetary policy was still somewhat restrictive and could allow inflation to gradually ease. However, she said she was prepared to support a rate increase in September if incoming economic data showed that tighter policy was needed.

 

Collins said the weak jobs data should be viewed with caution, as private-sector hiring remains positive and unemployment is relatively stable. However, she said inflation is still too high, making it the bigger concern for the Fed despite a mixed labour market.

 

Three Fed policymakers broke from the majority in July and called for an immediate rate increase. Cleveland Fed President Beth Hammack, Dallas Fed President Lorie Logan and Minneapolis Fed President Neel Kashkari also warned that bringing inflation down could become harder if high prices persist.

 

Weak jobs market complicates Fed's decision

 

The Fed's decision has become more difficult because the US labour market is showing signs of losing momentum. A weaker-than-expected July jobs report showed a loss of 23,000 jobs. The data led markets to reduce expectations of a rate increase in the near term, the news report said.

 

Over the past three months, the US economy has added an average of just 20,000 jobs a month. That is sharply lower than the average of 73,000 jobs added each month during the first quarter.

 

The labour market appears to be in a low-hiring, low-layoff phase, creating a difficult situation for policymakers.