As readers here surely know (and as we’ve covered here repeatedly), inflation is unquestionably the top economic issue in the country right now, and it has been for quite a while. In fact, we’re approaching the one-year anniversary of the first time I dug into the risk of the U.S. economy “overheating” in the months ahead (a piece that, in retrospect, holds up pretty well!). And it seems that not a day goes by that there isn’t some sort of breaking news about inflation in the U.S., whether it’s on new data, Federal Reserve stuff, legislative or executive branch actions, or the political ramifications. On the last two items, in particular, it’s become increasingly clear that rising prices are issue No. 1 for American voters and, therefore, Washington politicians—including the president—already eyeing the November midterms.
So why, then, does the Biden administration keep doing things to boost, not mute, inflationary pressures?
Inflation Update: Still Frothy Out There
Before we get to that, however, let’s briefly recap where things now stand. After several months of uncomfortably high inflation in 2021 deflated summertime hopes that price gains would be “transitory”, the Federal Reserve earlier this year began raising interest rates and just recently signaled that it will not only increase the magnitude of future rate increases (from a quarter point to half a point) but will also begin reducing its “mammoth” $9 trillion portfolio of Treasury and mortgage securities (acquired to implement “quantitative easing”). They’re meeting today to confirm these plans, the goal of which is to temper domestic demand while avoiding a “hard landing” that pushes the U.S. economy into a recession. The balancing act will not be easy.