Though apparently dedicated to winning the battle against inflation, Fed Chairman Powell is fighting a lonely battle that will be difficult to win, at least with an election taking place. There are limits to what the Fed can do when Congress and the White House are busy printing more money. Yes, even after a six-month long Fed effort to raise interest rates, U.S. inflation is still running at a hot 8.2%.
It will take time and restraint from Washington before things have a chance to calm down. Because inflation’s causes lie in politics as much as economics, let’s look past election-dominated 2022 for possible relief. There are some early data to support this hope.
For all the talk about the what’s behind the diminishing buying power of our money—war, supply chains, energy prices—inflation can still be thought of simply. Flood the economy with enough money and it will start to lose its value. That’s how White House and congressional efforts to forgive debt and increase spending have been countering the Fed’s action.
