Joe Biden isn’t the only culprit in America’s rising inflation rate (although he is heavily responsible). So is the Federal Reserve. Yet its Chairman, Jerome Powell, has just been confirmed to another term in office by the U.S. Senate. Economist Veronique de Rugy writes:
After presiding over the biggest Federal Reserve failure in 40 years and with inflation rating as the top concern among Americans, Jerome Powell’s nomination to a second term as chairman was approved this past week by the Senate, 80–19.
I know the usual arguments for ignoring the Fed’s spectacular errors, even at a time when inflation is such an issue. Most common are that other candidates would be even worse or that we need continuity. Maybe. The truth, though, is that a good person facing bad incentives in that job will make poor choices. Add in a lack of accountability and you repeatedly get bad policies. That type of continuity is not that appealing to me.
Inflation is rising globally, but it’s much worse in the United States, largely because of the excessive spending legislated in early 2021 via the American Rescue Plan (ARP). Powell was a giddy cheerleader for the $2 trillion, which many warned would cause inflation—especially as the Fed announced it would continue its overly accommodating monetary policy with no end in sight.
When inflation started to pick up, Powell argued that it was “transitory” because it was the product of supply-chain constraints. Apparently, no one at the Fed checked how many goods were getting through the ports. If they had, they would have known that by the end of 2020, more goods were getting through than before the pandemic. Also, in 2021, most countries barely suffered any inflation, which is incompatible with the theory that inflation is caused by global supply-chain disruptions.
And so, right under the chairman’s nose, inflation accelerated.
Powell didn’t just ignore the Fed’s mandate to pursue price stability; he flouted this mandate with “innovative” inflation targeting. This was supposed to allow the economy—and inflation—to run hot in the name not only of reducing unemployment (another Fed mandate), but also the pursuit of shiny goals such as encouraging “inclusive” growth.
When the chairman at the end of 2021 acknowledged that we had inflation, he still did very little about it. He didn’t stop the Fed’s purchase of treasuries until March 2022. Very small rate hikes were announced well into 2022, which likely will not be enough to tame inflation. Stunningly, many people still believed that those who failed to see inflation coming could engineer something that has never been done successfully in the past: a soft landing.
More at this link.
Joe Biden’s policies also caused inflation, according to even Democratic economists like Larry Summers and Obama advisor Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.”
Inflation is higher in America than it is in Europe. Biden defenders claim that the Biden era’s expansionary fiscal and monetary policy was needed to achieve economic growth. But America’s economy was shrinking recently, even as France’s economy was growing in 2022, and France’s inflation rate is lower than America’s. A finance professor describes the current era in the U.S. as “The Biden stagflation,” combining high inflation with economic stagnation.
By contrast, under Trump, the U.S. economy outperformed Europe, especially during the pandemic year of 2020, when Britain, France and Italy experienced much sharper economic declines than the U.S. The U.S. economy shrank 3.5% in 2020. The economy shrank much more in Europe: 7.9% in France, 9.9% in the United Kingdom, and 8.9% in Italy.