Inflation numbers today show that the Fed’s actions aren’t working (Headlines show 8.3 percent, down from 8.5 percent and core 6.3 percent up from 5.9 percent). In short, supply constraints are easing the top number, but inflation created by the Fed and Congress’ excesses is going up.
I have a sense that more aggressive actions are needed from the Fed. I will, however, leave that part of the analysis to people with stronger opinions or knowledge than I on this. What I know for a fact, though, is that the Fed’s actions will have to be way more radical because the Biden administration and Congress won’t stop spending money like drunken sailors on a binging spree.
According to the Committee for Responsible Budget:
Prior to the pandemic, the U.S. national debt was on an unsustainable path. In 2020, policymakers appropriately enacted $3.4 trillion of additional borrowing to help fight the pandemic and stabilize the economy. Once the economy was strong enough, Congress and the White House should have stopped engaging in new borrowing and pivoted to focusing on implementing reforms to slow the growth of the national debt.
Instead, policymakers have added to the deficit, and borrowing has continued and at a very high level. We estimate the Biden Administration has enacted policies through legislation and executive actions that will add more than $4.8 trillion to deficits between 2021 and 2031, or nearly $2.5 trillion when excluding the effects of the American Rescue Plan. This is on top of the trillions of dollars we were projected to borrow before President Biden took office.
In that context, is anyone surprised that the Fed’s actions aren’t working? John Cochrane at The Hoover Institution warned us about this.