Americans dislike rising prices twice as much as rising unemployment, making it difficult for the U.S. Federal Reserve (Fed) to cut interest rates, the Wall Street Journal (WSJ) reported on the 9th (local time).
The Personal Consumption Expenditures (PCE) price index for April, released by the U.S. Department of Commerce on the 5th, rose 2.7% year-on-year, exceeding the Fed's target of 2%. As a result, the Fed is expected to keep the benchmark interest rate unchanged at the Federal Open Market Committee (FOMC) meeting on the 12th.
Some argue that the 2.7% inflation rate is tolerable compared to 4.4% in April last year and 7.1% in June 2022. However, WSJ explained that Americans' strong aversion to inflation makes it difficult to lower interest rates.
According to a survey conducted by Professor Stephanie Stancheva's team at Harvard University, Americans view a 1 percentage point increase in inflation as twice as bad as a 1 percentage point rise in the unemployment rate.
The U.S. unemployment rate in May is 4%. If it rises to 5%, the number of unemployed would increase by 1.7 million. This means Americans dislike a 1 percentage point increase in inflation twice as much as an increase of 1.7 million unemployed people.
The reason Americans dislike inflation is not only due to concerns about eroding purchasing power but also because of the mental burden it causes. Professor Stancheva said, "Even if the budget is not tight, inflation forces people to constantly rethink and readjust their budgets when spending money, which fundamentally creates a significant cognitive burden."
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