<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1655143752308,"cms.content.publishUser":{"_ref":"0000017a-8cb2-d416-ad7a-beb7278f0000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1655143752308,"cms.content.updateUser":{"_ref":"0000017a-8cb2-d416-ad7a-beb7278f0000","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
var _bp = _bp||[]; _bp.push({ "div": "Brid_54882912", "obj": {"id":"27789","width":"16","height":"9","video":"1030046"} }); ","_id":"00000181-5e41-d405-a3e7-dfe75d130000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedThe Federal Reserve is trying to pump the brakes on inflation by hiking interest rates, but far too little has been done far too late. Inflation is now up to 8.6% over a 12-month period. Messaging on the economy from Democratic leadership and President Joe Biden’s administration relies on a strategy of denial.
Our leaders say there is no issue, but it certainly is not their fault if there is something wrong. This narrative is falling on deaf ears, and the people seem poised to punish the current administration for its incompetence in November.
Before the American Rescue Plan passed both chambers of Congress, former Secretary of the Treasury Larry Summers tried to sound the alarm. Summers warned that “inflationary pressures of a kind we have not seen in a generation” could occur due to “macroeconomic stimulus on a scale closer to World War II levels than normal recession levels” in an op-ed for the Washington Post.
Flash forward to 2022, and Democrats are reaping what they sowed but refuse to recognize it. Former press secretary Jen Psaki discredited Summers’s warnings in May. “I wouldn’t say we agreed with them then, and we don’t agree with them now,” she said in a press briefing.
Psaki ate her words just one month later. In June, the Congressional Budget Office confirmed that consumer demand increased due to Biden’s stimulus checks. Summers was right about the source of inflationary pressures and predicted the Biden administration’s unwavering stance on inflation. In his op-ed, Summers recognized “administration officials’ dismissal of even the possibility of inflation” as a factor that would contribute to rising costs.
The White House is not the only institution complicit in America’s latest economic debacle. Officials in the Fed incorrectly predicted low inflation rates for 2022 because inflation was treated as a short-term trend that would naturally run its course. “I expect that as price reversals and short-run imbalances from the economy reopening play out, inflation will come down from around 3% this year to close to 2% next year and in 2023,” said John Williams, president of the New York Federal Reserve Bank, in June 2021.
Summers was ahead of the curve once again. “Now, the primary risk to the U.S. economy is overheating — and inflation,” wrote Summers in a May 24, 2021, blog piece. “It is possible that the Fed could contain inflationary pressures by raising interest rates without damaging the economy,” he continued. Still, he noted, “That will be very difficult, especially given the Fed’s new commitment to wait until sustained inflation is apparent before acting.”
Fed Chairman Jerome Powell announced in November 2021 that it was time to stop calling inflation “transitory.” His actions lagged behind his words as the Fed started raising interest rates in March 2022. The Fed is now trying to tackle inflation head-on by raising interest rates more and more, with Powell saying he “wouldn’t hesitate” to slow down economic growth in order to lower inflation.
Powell finally recognizes that inflation is the primary economic problem facing America, but Biden is struggling to do the same. The president referred to inflation as “Putin’s price hike” after the release of the latest consumer price index. Inflation was surging before the Russian invasion of Ukraine. Biden wants his domestic economic agenda to survive rising inflation despite all signs pointing to it as the culprit of the crisis.
Biden reached out to Summers in June last year to discuss his economic agenda. It is becoming increasingly clear that he ignored the former treasury secretary’s advice. The White House and Congress cannot solve our inflation crisis, but they most certainly contributed to it. If Biden wants to make amends for his economic mismanagement, the first step is recognizing that Summers was right and his own administration was wrong.
James Sweet is a summer 2022 Washington Examiner fellow.
