Consumer-price inflation rose to 8.6% in May, its highest rate in 40 years. This tax on households and businesses threatens the economy. The Federal Reserve runs the risk of compounding a string of recent errors by being too tentative in raising rates. The Fed needs to act decisively to get a grip on inflation and inflationary expectations.
The situation is serious. Soaring inflation exceeds wage increases and is undercutting American consumers’ real purchasing power. Middle- and lower-income earners have suffered the most. Inflation-related worries have sliced large chunks off stock-and bond-market values, reducing household net worth. The University of Michigan Consumer Sentiment Index has fallen to its lowest measure in 50 years.
