Monday night, Bernanke delivered a third speech in which he took an even stronger stand against further rate cuts. The recent unemployment figures “have affected the outlook for economic activity only modestly,” he said. Sounding tough on inflation, Bernanke said the Fed “will strongly resist an erosion of longer-term inflation expectations.”
Bernanke has staked out the right approach. A strong signal that U.S. policymakers are committed to fighting inflation is the key to putting the brakes on out-of-control energy prices. By contrast, the federal gas-tax holiday that John McCain has proposed is unlikely to have any effect on gas prices, which recently reached a national average of $4 per gallon.
Instead of pushing this gimmicky idea, McCain should be voicing his support for a strong dollar and advocating pro-growth tax policies as an alternative to incessant interest-rate cuts. We understand the difficulty of selling a cut in the corporate tax rate in the current political environment, but such a tax cut would boost employment and make American products more internationally competitive, without weakening the dollar.
Campaigning for president in 1980, Ronald Reagan understood the importance of combating the stagflation of the 1970s. As a solution, he offered to cut taxes, reduce spending and decrease regulation. John McCain frequently says he was “proud to be a foot soldier” in Reagan’s pro-growth revolution. Now that it’s McCain’s turn to lead, he would do well to remember Reagan’s approach and emulate it.