This month, in an effort to slow down inflation, the Federal Reserve Bank raised interest rates by its largest amount in almost 30 years. The Fed’s goal is to reduce inflation by slowing consumer and business spending.
This is occurring as the United States continues to run up increasingly large deficits, following tax cuts passed in 2017, aimed predominantly at the wealthiest Americans. The method in which stimulus aid was distributed as well as continued supply chain issues due to COVID-19 and the war in Ukraine have also impacted inflation.
Price increases are generally caused by either strong demand (people have a lot of money and are willing to spend) or weak supply (the businesses selling things have trouble producing or supplying the quantity people want to buy).
“If you had voted for that [2017 tax cut], you would have flunked Econ 101, because it’s just wrong-headed policy to stomp on the gas when the economy is at full employment, which it was four years ago.” — Charles Ballard, Michigan State University
Listen: What is causing inflation and when we can expect it to subside.
Charles Ballard is a professor of economics at Michigan State University. He says the Federal Reserve is raising interest rates and restricting access to credit to ensure the country has stable prices and full employment.
“The Federal Reserve unfortunately is in kind of a lonely position because they haven’t had responsible partners on Capitol Hill or at the White House,” says Ballard. “I can blame both the Trump administration and the Biden administration and Congress for stomping on the accelerator pedal too hard, in my view. And that means, unless we reverse those tax cuts, which I don’t think is going to happen — unless we reel back the stimulus checks, which is not going to happen — that means the only game in town is the Federal Reserve.”