Opinion: Fed Must Act Now to Stop Runaway Inflation – Inside Sources

Price inflation in the United States is getting out of control. Americans are seeing prices rise at the fastest rates in 40 years. Until recently, the Federal Reserve — the agency tasked with ensuring price stability — has been unwilling to address the problem.

In recent months, the Fed has finally started raising short-term interest rates, an essential step toward stabilizing prices. But its own projections show that a much stronger response will be needed to bring inflation down to a more normal range.

Rising prices are clear to anyone who visits the gas station or grocery store. According to the Bureau of Labor Statistics, foods (meats, poultry, fish and eggs) are 14.2 percent more expensive than a year ago. Prices for other items like housing (shelter) and clothing (apparel) are up by 5 percent or more, and gasoline prices are up by a whopping 48.7 percent!

These are not isolated incidents. The prices of American consumer goods have been rising across the board. The consumer price index, for example, has risen 8.6 percent over the last year, the biggest increase since 1981.

In the early phase of recovery from the coronavirus pandemic, rising prices might have been blamed on problems in manufacturing and production. In response to the pandemic, many states closed their economies for a few months or, in some cases, much longer. As the economy began to rebound, shortages of automotive computer chips and production materials choked up prices and held back production.

But as the recovery progressed, it became clear that another culprit was driving inflation: too much money printed by the government. The Fed vastly expanded the money supply, accelerating the bounceback in spending and economic activity.

In March 2020, the Fed cut rates to almost zero, where they remained for two full years. Lower interest rates encourage economic production by making it easier for businesses to borrow so they can expand their facilities or hire more workers. People have access to cheaper credit to buy homes and cars or to spend on their credit cards, which eventually causes sellers to raise their prices.

In addition to cutting interest rates, the Fed created massive quantities of new money, encouraging people to spend more, ultimately bidding up prices. In March 2020, the Fed began a program of large-scale asset purchases, also known as quantitative easing or “QE,” buying $500 billion per month in U.S. Treasury bonds and $200 billion per month in mortgage-backed securities. The monetary base expanded from $3.45 trillion in February 2020 to $6.41 trillion by December 2021, an increase of 85.8 percent.

Congress chipped in with $5 trillion in new spending, including checks mailed out to millions of Americans. The Fed assisted by buying up the majority of the debt used to finance these stimulus programs.

By mid-2021, it was clear that price increases were being caused by widespread and persistent monetary inflation, not transitory supply-side inflation as the Fed had initially described. Since that time, Fed officials have repeatedly raised their projections of inflation in 2021 and 2022, yet they did nothing to stop it.

Despite several quarters of rising inflation, the Fed continued its QE program and did not tighten policy until March 2022, when it increased interest rates by 0.25 percent. They raised an additional 0.5 percent in May and 0.75 percent in June. However, these small steps don’t seem sufficient to combat the highest inflation rates in 40 years.

Even now, the Federal Open Market Committee projects that inflation will remain above its 2 percent target through 2024. It expects to raise short-term interest rates to 3.4 percent by the end of 2022 and to 3.8 percent in 2023. These minor changes hardly compare to the 1980s, when the Fed raised interest rates to 20 percent to stamp out inflation.

Fed Chair Jerome Powell promised more than six months ago that the Fed would “use our tools to make sure that higher inflation does not become entrenched.” Its actions, however, indicate otherwise. Inflation remains high, and Americans are worried that it’s not going away anytime soon.

Fed officials must act soon to get inflation under control. The longer they wait, the worse it will be for the Fed and for all Americans.

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7 thoughts on “Opinion: Fed Must Act Now to Stop Runaway Inflation – Inside Sources”

  1. The federal reserve has gone from a national stabilizing identity to a political tool of politics and world banking interests. ” The Creature from Jekyll Island” by Griffin describes the major bankers of 1912 went on a secret mission to Jekyll Island off Georgia to create the federal reserve and how to sell it to congress which it did in 1913. The last 30 years have been mainly manipulated to provide political cover for both political party’s in power.

  2. The Fed is stupid. All the interest rate changes, money supply policy and the like don’t mean diddly.

    The answer is simple. Tell the Democrat Party to REDUCE TAXES AND STOP SPENDING MONEY!

    Better yet, vote the entire lot of Democrats and their RINO buddies out of office in November. Start with Senator Space Clown.

    Red tsunami heading this way.

    1. George Hotchkiss

      The inflation is not being caused by the U.S. money supply. If it was , then how about the inflation in The U.K., France, Germany, Australia, Indonesia, Italy, Canada, Mexico, etc… The consumer price inflation is caused by us, the consumers. The Covid19 pandemic is the cause of almost all of the inflation. The supply chain disruptions are still happening all over the world. When the supply chain disruptions are reduced, inflation will reduce. When my wife and I go shopping, we just avoid the super high priced stuff, we can do without. But, the pent up demand is what is causing people to pay the higher prices. If we want to lower inflation, all we have to do as a society is buy less. The folks who keep bringing up government spending as the cause of this consumer inflation are just playing political games. Sheesh…

  3. YOU SAID: Inflation is cause by all of us spending money to buy our daily bread, but not by the Democrat Party clowns that spend Billions on handouts to Ukrainian kleptocrats and Violent Radical Left Cash Grabbers or billions on buying votes with entitlements or billions on idiotic boondoggles or billions on The Green New (Self-Serving) Deal or billions on illegal aliens.

    I SAY: Stand by, The Economic Clue Train is on its way.

    1. George Hotchkiss

      Just because you write something, does not make it true. Economists, not TV economists, but the poor folks who get to crunch numbers all day long, have been concluding since this inflation began that the inflation is caused by supply chain interruptions and the demand for the products. Period. If you would like, I will happily supply you with some of the scholarly journals that publish this kind of stuff. You love to make everything a political game, but sometimes politics has no role in this process. The cost of gas at the pump, and the sirloin tips at the supermarket are controlled by purely market forces. I write this to make sure other readers know you are a clueless political hack, not to try and inform you of the facts. Facts mean nothing to you.

  4. Woo, wooooo, here comes The Economic Clue Train, next stop is the self-appointed Comments Policeman.

    SCHOLARLY JOURNALS = Documents written by Radical Left Cash Grabbing Bureaucrats.

    GOVERNMENT ECONOMISTS = People who spin numbers to support the Radical Left Cash Grab and get a piece of the stolen pie for all their troubles.

    FACT: fuel prices started spiraling out-of-control as soon as the 2020 election was stolen from Donald Trump. This is not coincidence, this is cause and effect.

    FACT: OUT OF CONTROL SPENDING, DEMOCRAT-STYLE = INFLATION

    Game over, man…

    1. George Hotchkiss

      I feel for your family…the game goes on. Fuel prices started going up in April of 2020, because the world economy was recovering from the pandemic. If President had won the election, gas and groceries would still be the same as they are right now. Because the inflation is not being caused by any politician anywhere. The cost of oil is the main driver of inflation, the main cause for the current cost of oil is OPEC. The Saudis and the other OPEC nations do not care how much pain they cause to people all over the world, they love money. OPEC has chosen to limit increases in oil production to keep prices artificially high. The war in Ukraine, and the continuing supply chain problems are part of the mix, but lack of oil supplies is the main culprit. Please explain why Europe, Asia, Australia, South and North America, and Africa all have the same inflation we have here. I am pretty sure the democrats have not been sending checks to the citizens of Sub-Saharan Africa, but yet they have inflation. H-m-m-m, what would a person using logic, facts and reason make of this puzzle?

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