Congress and Biden have to help the Fed fight inflation
ANOTHER VIEW
On inflation,
With
As recent data suggests, though, the Fed could use some help. It needs an assist from areas of policy under presidential and congressional control: taxes, spending and regulation. Which brings us to the big thing
The "do no harm" injunction is even more important now that interest rates are rising, and government can no longer borrow as cheaply as it did when the Fed was in easy-money mode. August's Inflation Reduction Act followed the rule, more or less. It would essentially offset hundreds of billions of dollars in new green energy spending with increased revenue and spending reductions - mostly through lower payments for prescription drugs in federal health-care programs. Still, the bill doesn't really live up to its name. The consensus among forecasters is that it will be roughly inflation-neutral; its first drug price control, a
What's more, the president immediately pushed in the opposite - inflationary - direction by announcing a student loan relief plan that could shower several hundred billion dollars on recipients, much, if not most, of which fuel demand for goods and services.
The country does not need a wrenching transition to a balanced budget; to the contrary, that might help push the country into a recession, which could result from the Fed's rate hikes anyway. Nor are we denying that many factors beyond
Some fiscal decisions
Elsewhere on the supply side, the Biden administration needs to target outmoded regulations that restrict supply with no commensurate health or safety benefits. It has already done this regarding over-the-counter hearing aids, potentially saving consumers millions of dollars. Housing markets, long constrained by zoning and other rules, cry out for liberation, admittedly a job for local governments - but one that they might be more likely to take on if the president nudges them. If there is any area for bipartisan cooperation, consumer-friendly, productivity-enhancing deregulation might be it.
Inflation angers voters because it makes everything more expensive; it also fuels a broader feeling of government dysfunction and societal disorder. Getting it under control is urgent for this country's democracy - as well as its economy.
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JP Morgan expects inflation to decline
Despite uncertainty, investors are encouraged to invest in stocks again
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