As explained by WalletHub's Adam McCann, the U.S. inflation rate hit a 40-year high in recent years but has since cooled significantly due to factors like the Federal Reserve rate hikes. To determine how inflation is impacting people in different parts of the country, WalletHub compared 23 major MSAs (Metropolitan Statistical Areas) across two key metrics related to the Consumer Price Index, which measures inflation. More specifically, it compared the Consumer Price Index for the latest month for which BLS data is available to two months prior and one year prior to get a snapshot of how inflation has changed in the short and long term. To gain a deeper understanding of current inflation trends and what they mean for our economy, WalletHub also turned to a panel of experts, one of which is Fady Mansour, Director of the Sarah T. Butler Center for Research and Economic Development. Mansour explained to McCann that the main cause of inflation is an increase in the money supply — commonly known as “printing money.” According to Mansour, "To support the financial sector after . . . the Great Recession, the Fed doubled its balance sheet from less than $1 trillion in August 2008 to $2.2 trillion by the end of that year. The expansion continued, and by the end of 2014 the balance sheet reached $4.5 trillion. In March 2020, the COVID-19 pandemic emerged as a black swan event. Unemployment soared, and uncertainty reached levels not seen since the Great Depression. The Fed responded by substantially increasing the money supply again, expanding the balance sheet to nearly $9 trillion by March 2022."
To combat inflation, Mansour explained that the Federal Reserve raised the federal funds rate from near zero in early 2022 to 5.25 percent by September 2023 and began reducing its balance sheet by letting federal debt and mortgage-backed securities roll off, bringing the balance sheet down to about $6.6 trillion by September 2025. As a result, the inflation rate fell from its peak to 2.3 percent by April 2025—the lowest level in three years. "Raising interest rates makes it more expensive for businesses to finance new plants, purchase machinery, or expand operations. It also raises the cost of buying a home or a car and increases credit card and loan payments for households. By making borrowing costlier for both investors and consumers, higher rates slow spending and investment, which in turn cools the economy and eases inflationary pressures," Mansour stated.
Mansour concluded by pointing out that in recent months there have been signs of an economic slowdown, with weaker job creation and a “no hiring, no firing” environment. Still, consumers continue to spend and businesses feel compelled to invest in AI systems to reduce costs. "Inflation has been falling since the Fed raised interest rates and will likely continue to decline, but the future of the economy cannot be determined by the inflation rate alone; it will depend on how these competing forces — technology, investment, policy, and consumer behavior — interact over time," Mansour concluded.
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