Inflation Matters, It Turns Out

In January, I wrote that by putting extreme pressure on the Federal Reserve to slash interest rates to nearly zero and thereby blow out the money supply, Trump was “setting the house on fire” with himself, and the rest of us, locked inside. Well, now the House has burned down completely. And the Senate, too. Plus a solid collection of governors’ seats and state legislatures.

Like the two that preceded it, this was first and foremost an inflation election. People hate inflation. It’s a deranging thing to watch prices rise relentlessly on nearly everything you buy, with no end in sight. Inflation has murdered two presidencies in modern history, by my count, and is well on its way to killing a third.

Trump may not have succeeded at bending the Fed to his will. But the central bank — directionally, at least — did what Trump wanted it to do anyway. Before inflation was at or below target, it reversed course on monetary tightening and cut rates aggressively in 2024 and 2025. It routinely prioritized employment gains and aggregate growth numbers over rising prices. For the past year, the Fed sat on its hands as yearly inflation jumped back above 3 percent, and it is now closer to 4 percent. It has made just one rate hike since 2023, by a quarter of a percentage point, and is even now signaling that it may not do many more.

Here are some truths that conservatives must relearn: Inflation is always and everywhere a monetary phenomenon. The Federal Reserve has produced too much inflation with overly loose monetary policy, and it actively continues to do so. Only the Fed can make the price of everything go up all at once. The result is political poison for whichever party holds power.

Voters are furious with the price of fuel, yes, but also with the price of groceries, food at restaurants, housing, health care, electricity, and so on and so forth. There may be targeted interventions available to reduce the cost (or slow the pace of its increase) of some of these goods and services. But when the fundamental problem is too much money sloshing around the economy, reducing the price of any one purchase is like pinching a water balloon. The excess money will flow elsewhere and bid up other prices.

There is but one real solution to generalized inflation, and it’s monetary tightening: higher interest rates and costlier credit, so that fewer new deposits are created as bank loans, and slower growth of the underlying “base” money supply. It’s no fun and would inevitably cause some pain — but the same can be said of inflation if liquidity is not tightened.

It took about two years for Paul Volcker to bring inflation under control and for economic growth to recover after Ronald Reagan entered office in 1981. The first two years of monetary policy under Trump were wasted, so now’s the time to start the clock. Otherwise, enjoy 2028.