“You can’t always get what you want.”

            You shouldn’t believe something is true just because it’s better than the alternative.[1] 

            First of all, “he’ll be fine.”—Mike Ermentraut in “Better Call Saul” after he whacked some smart-alec in the throat and left him gagging on the floor of a parking garage.  The Federal Reserve Bank is going to raise interest rates until demand clearly falls.  If the underlying economic fundamentals—household spending for example—remain strong, then the Fed will go on tightening. 

            Second, neither cops nor the Fed are actually your friend.  Doesn’t matter what your parents told you when you were little.  They both have jobs to do.  They’re going to do those jobs.  In the case of the cops, that can mean grabbing up a bunch of teenagers having a house party while the parents are away.[2]  Yes, the recent historical pattern has been for the Fed to rush in stimulate the economy.  That pattern developed long after Paul Volker had to—and did—break a serious inflation in the l980s.  Since then, there haven’t been any serious inflationary periods.  Just the opposite: slumps and crises have repeatedly required the Fed to pump up the economy.  That is what people are used to.  They have a hard time imagining somebody being a real jerk.  But Ben Bernanke rose to the occasion during the financial crisis of 2008 and the “Great Recession.”  There’s no reason yet to think that Jerome Powell will not do what has to be done.[3]  Now, we’re not in Volker territory, but we’re close enough. 

Fourth, inflation sentiment or expectations are not the same thing as inflation itself.  Many of the signs that inflation has peaked are actually small contributors to rising prices.[4]  Energy and food prices have long been recognized as volatile, so the “core” inflation indexes exclude them from their calculations.  Same goes for raw material prices, which factor in as only minor contributors to personal consumption.  One measure of personal consumption inflation has it at 4 percent.  That isn’t the 2 percent target set by the Fed.  How long will it take to get there? 

Currently, the economy, jobs, and inflation have crowded out all the other political concerns that once excited many Americans.  As is the case with guns and abortion, people just expect President Joe Biden to “do something.”  Biden has not done a good job of explaining either the problem or the remedy.  He has not said that the Trump and Biden administrations responded to the Covid economic crisis by expanding the money supply dramatically.  He hasn’t acknowledged that his administration, in particular, overshot the mark.  Instead, he has blamed the supply-chain problems, the war in Ukraine, and price gouging by corporations.  He hasn’t told people that beating inflation is very important on many scores, not least because it hits hardest at people who can’t adjust their incomes.  He hasn’t said that it will likely be a time consuming and painful process.  He hasn’t said that it is beyond the control of “the most powerful man in the world.” 

Would anyone thank him if he did?   

[1] Greg Ip, “Beware Wishful Thinking on the Economy,” WSJ, 14 July 2022. 

[2] The party may involve finding some nominal adult to buy them a case of beer.

[3] It is only fair to point out that the off-term elections are coming in November 2022.  The Democrats have a tenuous grip on Congress.  There is likely to be a lot of caterwauling if the Fed does trigger a recession between now and November.  President Richard Nixon urged Fed chairman Arthur Burns to “give us some money.”  Burns complied. 

[4] For example, lumber prices have fallen by better than 50 percent from their peak.  Housing prices are still high and rising in many parts of the country. 


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