CEI Economist: Inflation Remains High, Fed should Keep Raising Rates

The Consumer Price Index rose 0.4 percent in February, according to the U.S. Bureau of Labor Statistics. Amounting to an annual inflation rate of 6 percent (compared to 6.4 percent in January). Competitive Enterprise Institute Senior Economist Ryan Young says the biggest threat at the moment is lawmakers who feel political pressure to meddle with Fed decisions:

“The Fed’s inflation target is two percent, and the latest CPI reading is six percent. Next week the Federal Reserve will decide whether to keep raising interest rates, which would lower inflation going forward. The decision has tradeoffs, which Silicon Valley Bank’s failure has made clear.

“The most common tradeoff to tightening monetary policy is that it can cause unemployment. With unemployment currently at 3.6 percent, and with more than 10 million job openings, this is not yet a problem. The Fed faces a bigger threat from grandstanding senators who want to keep interest rates low in order to stimulate the economy heading into a presidential election year.

“Artificially low interest rates also encouraged bad behavior at banks like Silicon Valley Bank. Now that low interest rates are returning to more natural levels, some of those bad bank management decisions are being exposed. Taming inflation can happen now with a little pain, or it can happen later with a lot more pain. Neither choice is ideal, but one is clearly better.

“It takes courage for the Fed to stay the course on fighting inflation, but it is worth it. We’ll find out more next week when the Fed makes its next interest rate decision.”