Inflation About to Roar Back to Life?
The U.S. Federal Reserve is dismissing concerns that its policy of holding interest rates at or near zero for the foreseeable future will inevitably lead to the return of inflation. But the policy, which is intended to help foster job creation and economic growth, has even some Democrats worried the Fed is playing with fire.
Writing in the New York Times, former Obama administration advisor Steve Rattner says that too many “smart people” are getting too complacent about inflation, particularly when combining low rates with massive federal government stimulus:
…let’s not be so blasé about how hard it would be to put that tiger back in its cage. Forty years ago, curbing the painful hike in prices took the Fed raising interest rates to 20 percent, forcing the economy into a brutal recession.
Rattner says the $1.9 trillion relief package Congress has approved should be cut back, with some of the biggest reductions coming out of the $510 billion set aside for state and local governments:
The $510 billion in aid to states and localities (including for education) should also be dramatically reduced; the Committee for a Responsible Federal Budget recently explained how Moody’s Analytics estimates only “an additional $86 billion of aid is needed to cover revenue losses.”
The Cato Institute’s Chris Edwards has long argued that state and local governments were in better fiscal shape than congressional Democrats were willing to admit. Edwards says throwing money at them now that the economy is poised to rebound creates a strong “disincentive for states to take care of themselves” through programs like rainy day funds.
None of the inflation concerns, though, seem to matter on Capitol Hill, where Democrats will give final approval to the relief bill this week.
Image Credit: By AgnosticPreachersKid (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons