Inflation Hits 40 Year High, but Policymakers Can Fix It

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Inflation is up, again, the Bureau of Labor Statistics reports today. The Federal Reserve has a clear job to do, but Congress and President Biden will be a problem, explains CEI Senior Fellow Ryan Young:

“Inflation is now at 7 percent, the highest in 40 years. Politicians created this problem, and they can fix it if they have the will. The strongest factor in inflation is monetary policy—the amount of money relative to the amount of goods and services. The Federal Reserve should slow monetary growth to get it back in sync with the amount of goods and services being produced. The difficulty is that Congress and President Biden will likely put pressure on the Fed to do as little of this as possible.”

“Deficit spending is another major inflation driver, and the political branches have been setting new records. Higher interest rates will make repaying this debt more expensive, which puts limits on the promises politicians can make in an election year. The solution here is to spend less and to let the Fed do its job.”

“The third driver of inflation is the pandemic’s toll on goods and services and on supply networks. This is already recovering to usual levels, but there is still a ways to go. Policymakers at all levels of government should improve COVID resilience by following a positive reform program that can appeal to voters. This would include removing tariffs, trucking regulations, and other supply network clogs, while allowing shipping ports to modernize. It would also involve lifting excessive occupational licensing requirements that keep people out of good jobs, easing zoning and land-use regulations that make housing more expensive, and cleaning out obsolete or never-needed regulations from the 185,000-page Code of Federal Regulations.”