Inflation Stuck: Twice the Rate the Fed Wants

By at 15 May, 2024, 7:58 pm

by Raymond J. Keating – 

The old saying about inflation continues to prove true. That is, once it has escaped, it’s hard to stuff the inflation genie back into the bottle.

We’re seeing those challenges right now, as the latest Consumer Price Index report from the U.S. Bureau of Labor Statistics shows that inflation persists at an unacceptably high level.

Since inflation is so insidious – like a tax that reduces the purchasing power of the dollar, hikes costs for businesses, jacks up interest rates, and creates risk and uncertainty, among other ills – the need is paramount for a nation’s monetary authority to stay vigilant against inflation.

But, alas, the U.S. has played fast and loose with monetary policy since 2008, and the right circumstances took hold with the pandemic and related responses. The result? Inflation ignited in early 2021 and ran exceedingly hot through mid-2022.

And while inflation then cooled some, the recent data are deeply troubling.

Source: Federal Reserve Bank of St. Louis, FRED

As noted in the chart above, CPI inflation registered 0.3 percent in April, and that following on 0.4 percent in March and February, and 0.3 percent in January. So, since the start of this year, the annualized inflation rate is roughly 4.2 percent. That’s twice the rate that the Fed would like.

The Fed needs to get serious about reining in the money supply, while the White House and Congress would do well to at least cease imposing and/or threatening costs that retrain economic growth (such as tax increases, more regulation, and protectionist trade measures), and perhaps even implement pro-growth measures like tax and regulatory relief, and advancing free trade accords. Hey, I know, crazy, right?

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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