WAKE COUNTY, N.C. — In the U.S. inflation is at a 40-year high with the Federal Reserve increasing interest rates by 0.75%. It's the largest single increase since 1994.

 

What You Need To Know

Inflation in the United States is at a 40-year high

The Federal Reserve has increased interest rates but is promising to bring down surging prices

Experts think this surge in inflation will ultimately lead the economy into a recession

 

The Fed increased interest rates in hopes of slowing down surging prices, but some people don't think that's going to work.

Duke University professor of finance Campbell Harvey says ultimately this could lead us into a recession, and he wants people to be prepared.

"I've been warning about this on my LinkedIn since March of 2020 that we were getting into a situation where this inflation was not going to be temporary, it was going to be permanent, and we are living that right now," Harvey said.

​Customers are seeing inflation's impacts on food, fuel and other staples. Harvey says there are multiple causes for it.

Harvey says the surge in gas prices is due to several things: Underinvesting in oil exploration, oil companies moving toward renewables, shortages due to the pandemic and the Russian invasion in Ukraine. Plus getting more oil is a long and difficult process.

“It's very difficult to turn a knob or press a button and production all the sudden goes up," Harvey said. "To drill a new well, extract the oil, get it refined, get it to the gas stations ... that takes a long time."

Another reason for inflation is that during the pandemic, the Fed was printing more money at an unprecedented rate to help rescue the economy.

"Even though unemployment was initially high, it started to decrease. And the stock market went to all-time highs," Harvey said. "And yet the Fed continued doing what it was doing, increasing the money supply and keeping interest rates at zero. That doesn't make any sense to me whatsoever and that was just a mistake," he added.

And Harvey says another reason for inflation was the fiscal stimulus, which made sense to give out money while so many people and businesses were struggling, but once the economy recovered, the money was not withdrawn.

He says all of these warning signs point to a recession, and he is warning people and businesses be cautious right now.

"It's very important that the average person be prepared for that," Harvey said. "This is not the time to take that expensive vacation to Disney and finance it with your credit card. This is the time to be conservative and to be ready for the worst. Given our policy-makers have messed up, it is a responsibility of every citizen to be prepared for a recession."

Harvey says he wants the Fed to figure out the sources of inflation in regard to the Consumer Price Index.

"I would assign the 400 Ph.D. economists at the Fed to actually investigate each of these components and come back with some recommendations as to what could be done to alleviate inflation," Harvey said. "My recommendation is a bottom-up approach. Rather than this really crude blunt instrument of just raising interest rates by 50 or 75 basis points and thinking that's going to solve all of these issues."