The Federal Reserve's deflationary focus conflicts with Biden's inflationary policies
In July, price levels actually dropped from June. Nevertheless,
The only remaining question appears whether the next rate increase will be 0.75%, like the increase in July, or 0.50%, for which more political observers are hoping. Indeed, the political pressure would be for no further increase in rates at all—since higher interest rates will hurt everyone carrying an adjustable-rate mortgage, credit card debt, or looking to buy a home.
One month and two weeks before the midterm elections, the administration would prefer to avoid a jolt of economic pain.
This is the most recent manifestation of growing divergence between the
Spending more money than the government takes in through taxes is another disconnect. That practice, in which the
It seemed for a (short) while that the
Why printing less money lowers inflation was explained sixty years ago by
Now, however, the
Further, the former students receiving this windfall will have more money to spend, at just the time the
The two policies are economically irreconcilable.
It is thus most instructive that Powell praised Volcker in his remarks.
"The successful Volcker disinflation in the early 1980s followed multiple failed attempts at lower inflation over the previous 15 year," Powell concluded, "Our responsibility to deliver price stability is unconditional." That means no conditions to keep unemployment from rising (although the Fed's own statute makes achieving maximum employment equally important as price stability), and no conditions to help the
Ahead of Fed's September meeting, some key data on unemployment and inflation
100 basis point Fed hike expected this year
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