The Federal Reserve, Congress, and President Joe Biden are all complicit in the intensifying growth of price inflation, and all three should ratchet back their reckless policies that are causing it.
However, Biden should take the lead, as it is his own policy choices most likely turning his administration into the second coming of Jimmy Carter’s inflation and malaise.
The Bureau of Labor Statistics reported Thursday the annualized inflation rate in May was 7.2%, making it the third consecutive month in the annualized high single digits. Overall, prices have risen by 5% since last May, despite the coronavirus-caused slowdown for the first half of that time period.
While some inflationary pressures are normal in early stages of a bounceback from an economic shock, the price hikes in the last three months are extreme. If they continue much longer, inflationary expectations can become an entrenched, self-fulfilling fear — a fear justified by real-life policies which cause inflationary fever.
Four factors are feeding the price hikes, with at least three of them likely to continue unless policymakers change course. The one that may naturally work itself out involves supply-chain disruptions caused by COVID-mandated shutdowns. We can only hope Biden, Congress, and regulators don’t do anything to retard the natural rebound from that problem.
The second factor is one Biden doesn’t directly control, but something a president’s pointed words can usually influence if he has the will. More than any other institution, the Federal Reserve has responsibility by explicit law for keeping inflation in check, but presidential jawboning can help remind it of that mission. Jawboning may be needed.
For whatever reason, Federal Reserve Chairman Jerome Powell and his colleagues continue priming the inflationary pump even after it became obvious a month ago that prices had begun dangerously overheating. While there is no need for the Fed to artificially boost interest rates to dampen prices, there is every good reason to reverse its policy of engaging in $120 billion in asset purchases. Forgive the cliché, but this extravagance is like setting up fire to go on a blind date with gasoline. It’s not just unwise but reckless.
The third major contributor to current and imminent inflation is the spendthrift fiscal policy pushed by Biden and Congress, especially congressional Democrats. Under former President Donald Trump, lawmakers already pushed the limits of reasonable coronavirus “relief,” despite creating the largest peacetime federal debt in U.S. history.
But since Biden and the Democrats took power in January, the federal government has spent so quickly on so many things having nothing to do with COVID-19 that cash is flooding the system faster than supplies can keep up. Yet, Biden and company keep yelling for more, more, more, as if the U.S. Mint’s printing presses can be locked on a setting labeled “Weimar” without negative consequences.
The federal spending binge must stop.
Finally, Biden is 100% to blame for the fourth main cause of price hikes, a cause entirely reminiscent of the Carter years during which Biden served in the Senate. One would think he would have learned the lesson that shortages of (or, in Biden’s case, outright hostility to) domestic oil and gas can contribute mightily to inflation across the board. Instead, through executive fiat alone, Biden is waging an unholy war against domestic production.
The president has killed the Keystone Pipeline, halted new production from federal lands and waters, and indefinitely negated the legal leases in the Alaskan National Wildlife Refuge. He has been unrelenting against fossil fuels, and his own conflicting statements on fracking combined with his vice president’s stated goal of banning it surely is deterring investment in that technology, too.
As supplies diminish and as the market reads all those signals to expect far greater diminishment to come, the result has been extremely rapid and eminently predictable. The price of gasoline is up a whopping 56% from a year ago, while propane and kerosene are 16.6% higher in the past year and electric bills are 4% higher. Of course, as gas prices rise, so does the cost of transporting almost every physical good in the nation, which means higher energy costs usually are an inflation multiplier.
If Biden, Congress, and the Federal Reserve don’t reverse all these courses soon, the harm to pocketbooks could be severe. If so, the harm will be entirely the fault of the federal government and its putative leader, President Biden.
