Historical efforts to combat inflation have been accompanied by further anguish.
This means for those with $1,000 saved up, their financial buffer might actually be closer to $940 as inflation at its current pace eats into that money. For those with $10,000 saved up, they might expect to see about $600 seemingly evaporate from that nest egg -- without even touching it.
"When you're seeing roughly 2% price increases, it's kind of running in the background, that 2% number is by design," House said of the past."But when we are seeing 5, 6, 7% inflation, it's hard for consumers not to notice, and that begins to affect how they think about their decisions, including what they're asking for in terms of wages out of a job."
Economists also note that policymakers now have the lessons from the past to glean how best to respond to inflation.period of the 1970s and early 1980s, the most-recent inflationary period that those on the cusp of retirement are warning their children about, inflation snowballed out of control as prices climbed and workers in turn asked for higher wages -- creating the economic phenomenon now referred to as the"wage-price spiral.
This will likely manifest in interest rate hikes, which the Fed has already signaled will likely occur Looking back at history, the Fed was seen as initially behind the curve and slow to raise interest rates in the '70s to respond to inflation -- before announcing a shockingly sudden federal funds rate increase of almost 20% in 1980. Those who held bonds directly or through retirement accounts subsequently suffered huge losses, and real interest rates also soared. The move ended up having ripple effects that devastated the overall economy, as well as the stock market.
In figuring out how to best anchor inflation without triggering an economic downturn, simply put, House said the Fed is"not in a very enviable position."At the individual level, meanwhile, Carnegie Melon's Spatt warns there is very little consumers can do on their own to tackle inflation as a whole once it takes root in the economy.
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