High inflation has hurt Biden's approval and took support away from his plans for new major spending programs and tax hikes.
“This crushing report shows Democrats’ spending has pushed Bidenflation to achieve the highest prices in 40 years, killing family budgets and wiping out three years of wage gains," said Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee.
The persistent inflation has led the Federal Reserve to get ready to raise interest rates this year for the first time since 2018. This year could see several interest rate hikes, the first of which might occur in March.
Federal Reserve Chairman Jerome Powell testified before the Senate on Tuesday and told lawmakers that the economy is now in good enough condition for pandemic-related stimulus to be reduced back and for interest rates to be raised. This comes after months of unprecedented economic support by the Fed.
The last time the Fed raised interest rates was in 2018, after which it began incrementally lowering them. The central bank dropped the federal funds rate to near-zero at the onset of the Coronavirus pandemic in 2020 and has preserved them at that level. Now, Fed officials are expecting a series of rate hikes in the coming months and years, the first of which could come in March.
Inflation has been the major element pushing the central bank to raise rates. Consumer prices increased 6.8% for the year ending in November — the fastest pace of inflation in 39 years. While higher interest rates will hopefully tamp down the rising cost of goods, they will also affect credit cards, mortgages, investments, and savings.
"When the annual rate of inflation begins with a 7, there is immense pressure on the Federal Reserve to get it under control, supply chain issues notwithstanding," said Bankrate's chief financial analyst, Greg McBride.
The new inflation numbers came after a worse-than-anticipated December jobs report last week. The economy added just 199,000 new jobs in November, below predictions, although the unemployment rate fell below 4% for the first time since the pandemic began.
Another factor causing uncertainty in the economy is the Omicron variant of the virus, which has completely overtaken the country and sent cases, hospitalizations, and deaths soaring to record highs.