(UnitedVoice.com) – If you shop at the grocery store or buy gas for your lawnmower, you’ve probably experienced sticker shock over the last few months. It’s not just groceries or gasoline. Everything you buy is going up in price. Lumber, homes, cars, vacations, retail goods, and entertainment prices are soaring. The last time America saw anything close to this was the 1970s.
The Federal Reserve’s mandate is to manage the US economy. Over the last year, its performance was poor, at best. It keeps getting inflation projections wrong. On Wednesday, July 28, Federal Reserve Chairman Jerome Powell acknowledged part of the root problem, and guess who’s partially to blame for the dramatic rise in inflation? You got it, Democrats.
Could Democrats Be Partly to Blame?
While President Joe Biden and members of his economic team blame the fast rise of inflation on America’s return to normal, that’s merely the symptom. On Wednesday, Powell acknowledged the supply chain is bottlenecked and broken. Businesses are struggling to hire appropriate staff, and other economic constraints could cause inflation to rise higher than it already is and last longer than anyone initially expected.
How could that be?
It wasn’t hard to see the trainwreck coming. Scores of non-government economists predicted the inflationary disaster as early as last summer and as late as March of this year. There were several easy to predict occurrences driving the price spikes.
For one, Democratic governors in large states shut their entire economies down. California, Illinois, Michigan, New York and Pennsylvania are just a few states that come to mind. At the high point of the COVID shutdowns, tens of millions of people were collecting unemployment benefits. When governors began re-opening their states, there were bound to be manufacturing lapses, supply chain issues and employment challenges. It’s impossible to go from zero to sixty in 3 seconds with an aircraft carrier, let alone a country as big as the United States.
Second, many economists warned Democrats the $1.9 trillion American Rescue Act passed through reconciliation along party lines wasn’t broadly needed. Trillions of dollars were still sitting on the sidelines, waiting for businesses and consumers to spend the money. When states started re-opening, an economic spending spree overheated the economy and helped propel prices higher.
These are all things high school students learn in basic macroeconomics. How did Democrats not know this would happen? Larry Summers, the former treasury secretary under President Bill Clinton, warned in February, “We must make sure that it (the American Rescue Act) is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment.” No one listened to him or other economists.
Federal Reserve Gets It Wrong
Making matters worse, the Federal Reserve championed Congress’s spending spree. They forecasted inflation to remain in check. They were wrong.
The Fed’s preferred price index is the Personal Consumption Expenditures (PCE).
- In December, Fed officials expected inflation to rise 1.8% in 2021.
- In March, the Federal Reserve bumped inflation projections up to 2.4%.
- In June, the median climbed to 3.4%. We’re still awaiting June’s official number, but many expect March’s report to be revised even higher.
The Consumer Price Index (CPI) is the one most Americans are familiar with through the media. In June, the annual rate rose to 5.4%, after a 5% rise in May.
The Fed is letting itself off the hook entirely too easily. It’s injecting trillions of dollars of its own into the economy on top of Congress’s actions. It now holds more Treasury notes and bonds than ever. They are still using a process called “quantitative easing,” in which they keep interest rates at or near zero to inject money into the economy that’s not needed.
While the Fed’s actions were arguably warranted a year ago, its current policy is helping to drive inflation today. So, while Powell’s assessment of the problem is partially correct, and Democrats deserve much of the blame, so does the Federal Reserve.
Unfortunately, it’s not likely inflation is a short-term problem. It’s more likely a long-term challenge that won’t change until Democrats are out of power in Washington, DC, and the government reforms the Federal Reserve.
Hold onto your wallets and purses, America.
Don Purdum, Independent Political Analyst
Copyright 2021, UnitedVoice.com