Congress is asking the right questions
Congressman Blaine Luetkemeyer and Senator Elizabeth Warren grilled Fed Chairman Jerome Powell during his congressional testimony. They both asked what we all were wondering is Chairman Powell able to tame inflation alone, and if so, what are the costs?
Senator Warren asked Chairman Powell if rate hikes could fix gas or grocery prices, could they turn around Putin’s tanks in Ukraine, or break up corporate monopolies? His answers to all were no; that is something too often glossed over in punditry. The federal reserves can control rates, and Senator Warren articulated that rate hikes mean higher borrowing costs on families and potential job losses as companies evaluate their balance sheets and cut payroll. She made clear that the tools of the fed address demand but not supply, and we have supply shocks the fed can not fix, but rate hikes risk a recession.
“Inflation is like an illness, and the medicine needs to be tailored to the specific problem, otherwise you could make things a lot worse,” Warren said. “Right now, the Fed has no control over the main drivers of rising prices, but the Fed can slow demand by getting a lot of people fired and making families poorer.” Senator Warren
Representative Blaine Luetkemeyer laid out just how limited the fed’s ability to address inflation was. Representative Luetkemeyer breaks inflation into four parts.
- Regulatory environment
- Monetary supply
- Supply chains
He digs deeper into monetary supply stating the feds have only partial control over it because congress controls taxes and spending(he of course mentions the last several budgets and COVID stimulus). But it is also similar regarding regulations, supply chains, and energy, but even then, private sector actors also have a part to play.
My point, similar to The Congressmen, is that supply and demand are both out of whack, and while the feds can raise rates and slow demand, that is not enough. Our elected officials must act, and that means taking into account all stakeholders and serving their constituents, not cutting campaign ads and bickering with each other. They have acknowledged the fed’s tools are inadequate and even worse the fed’s tools risk a recession and pain for Americans. Our elected officials have the capacity to deal with the issues facing our economy and the remaining tools, but they have not taken the next step we need, now is the time to act.