For even the most sycophantic supporters of the current White House, the writing has been on the wall about our mounting inflation crisis for months. But less tribal-minded liberals such as Larry Summers saw this coming before Joe Biden recklessly infused the economy with $1.9 trillion in extra spending at the beginning of his presidency.
But for those who understand, contrary to the decadelong consensus of progressives that inflation is a monetary phenomenon, it’s been years.
Inflation now dominates voter concerns, especially harming nonwhite voters. They may react by pushing Republicans to historic wins in November. This has forced Democrats to change their tune and start talking like deficit hawks. It may be too little, too late, but finally, everyone is on board with the idea that inflation is bad — everyone, that is, except for the frauds at the Federal Reserve.
The same people who spent a year lying to you that inflation would prove transitory are now lying to you about two matters of even more consequence. First, they are deceiving you by giving the impression that their rake hikes are taking real interest rates out of unprecedented negative territory. Second, they are falsely making you think their actions will meaningfully phase out inflation with a “soft landing” — econ-speak for a deceleration of economic growth that doesn’t turn into a proper recession.
Let’s start with the Fed’s first rate hike since 2018. Despite the Fed slow-walking its monetary tightening campaign, it sorely disappointed when it settled on a rate increase of a mere 25 basis points instead of a full half percentage point. This caused uncertainty for investors and caused consumers to register inflation expectations of 6.6% over the year — a record high, according to the New York Fed. Even Paul Krugman, of all the inflation doves, has conceded that this is setting the stage for a return to the 1970s nightmare of stagflation.
As to why the rate hike isn’t even really a rate hike, in inflation-adjusted dollars, let me quote Summers:
Second, suggestions to the contrary are based on “assume a can opener” economics. If one assumes a collapse in inflation, then there will be a sharp increase in real rates. But that is not policy; it is simply assumption.
Third, the Fed has revised its view of interest rates upward this year by less than its projection of inflation. This means it has fallen further behind, not caught up with its problem.”
With producer inflation in double digits and consumer price index inflation likely to follow, it seems clear that the Fed’s quarter-point hike was not nearly enough. And yes, the Fed knows it. Just take the minutes from the March meeting: “Many participants noted that — with inflation well above the Committee’s objective, inflationary risks to the upside, and the federal funds rate well below participants’ estimates of its longer-run level — they would have preferred a 50 basis point increase,” the Federal Open Market Committee recorded. “A number of these participants indicated, however, that, in light of greater near-term uncertainty associated with Russia’s invasion of Ukraine, they judged that a 25 basis point increase would be appropriate at this meeting.”
As for the “soft landing” lie, Powell cites three historical examples to make the case — from 1965, 1984, and 1994. But Summers debunks all three as dissimilar to the current situation. Today, we have a much lower unemployment rate, a much higher job vacancy-to-unemployment ratio, and much higher wage inflation.
Furthermore — it’s a much less fashionable objection — is the sheer size of our money supply and the Fed’s long-term insistence on quantitative easing. We spent 10 years printing money like it grew on trees, only to find ourselves cursed with the predictable consequences.
So the Fed is lying to you. It is not making a mistake or being naive in its optimism. Its governors are telling you new falsehoods in hopes of prolonging the time they borrowed by telling earlier falsehoods.
