After a weak swipe at inflation at its May meeting, the Federal Reserve delivered the biggest rate hike since 1994 at its June FOMC gathering. But is it enough to tackle persistently red-hot inflation?
Ron Paul doesn’t think so. He notes that the recent rate hikes have only raised rates to the level they were before the pandemic.
The Federal Reserve cannot increase rates to anywhere near the level they would be in a free market because doing so would increase interest payments to unsustainable levels for debt-ridden consumers, businesses, and the federal government.”
After last week’s FOMC meeting, Federal Reserve Chairman Jerome Powell claimed that a “soft landing” was still possible. In other words, he thinks the central bank will be able to slay red-hot inflation without tipping the economy into a recession.
Is this feasible? Or is it a fairytale?
A 75 basis-point rate hike wasn’t even on the table a month ago. It appears that the central bankers over at the Fed were crawling around under the table because they found a 75-basis point rate hike.
The Fed went big at the June FOMC meeting in response to hotter-than-expected May CPI data just a week earlier. Jerome Powell admitted that Fed members were “surprised” but another big spike in prices.
So, what’s the plan here? Well, by all indications, there isn’t one.
The Federal Reserve doesn’t have a very good track record. It was wrong about transitory inflation. It was wrong about peak inflation. And it’s almost certainly wrong in thinking the economy is strong enough to withstand tighter monetary policy to fight inflation.
But President Joe Biden trusts the Fed. The cornerstone of his inflation-fighting plan is to recognize the central bank “has the primary responsibility to control inflation.” He took a shot at President Trump for “demeaning” the Fed. On the other hand, Biden said he will respect the Fed and its independence.
People come up with all kinds of excuses for inflation. First, they told us there was no inflation. Then they insisted that it was transitory. Then they claimed it was caused by greedy corporations. Later they shifted the blame to Putin. But none of this gets to the root cause of inflation – the expansion of the money supply by the Federal Reserve.
If you want freedom, you need sound money.
So, argues economist Ludwig von Mises.
It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of right.”
We’ve been told inflation is caused by greedy corporations. We’ve been told that inflation is Putin’s fault. Other people just want to blame COVID-19. But are any of these really the root cause of inflation?
Economist Dr. Antony P. Mueller says none of these excuses really account for the rash of rising prices we’ve seen in recent months. At its core, this inflation is caused by a deeply flawed monetary system that allows central banks to create money out of thin air.
There is more talk of student loan forgiveness. Supporters of these schemes argue that the whole system is inherently unfair, although they rarely talk about who would pay for student loan forgiveness. They also seem oblivious to the fact that the federal government created this problem to begin with.
With the impact of sanctions tanking the ruble, the Russian central bank announced it would buy gold from local banks at a fixed rate. The move had the desired effect. The ruble quickly recovered. But the Central Bank of Russia abandoned the de facto gold standard almost as fast as it implemented it.
Why?
Everybody and their brother is an expert on inflation now. And everybody thinks they can pinpoint the reason for rising prices. It’s Putin! Or maybe it’s greedy corporations. Or was it COVID?
As Ron Paul explains, it was none of the above.
The blame for this inflationary fire falls squarely on the shoulders of Federal Reserve Chairman Jerome Powell.
