Prices are rising at the fastest pace in 30 years, according to Wednesday’s report by the U.S. Bureau of Labor Statistics (BLS) on the consumer price index for October. The report showed a rapid 6.2% increase over the last 12 months, a pace which, if continued, would see prices double in fewer than 12 years. Meanwhile, the BLS recently reported that the producer price index, which measures prices paid by businesses, rose by 8.6% — a record high.
Unfortunately, the man ultimately in charge of keeping prices stable seems to be paying more attention to vague notions of “diversity.”
Federal Reserve Chairman Jerome Powell has been asleep at the switch when it comes to inflation. As price increases have accelerated, Powell has repeatedly asserted that inflation is “transitory.”
Despite mounting and concerning evidence, Powell spent time earlier in the week to give a talk on diversity and mused on what the Fed can do to promote this amorphous idea. But the Fed’s job is not to chase political talking points; its job is to keep prices stable.
Furthermore, inflation does not care about your race, sex or creed. Inflation does not discriminate — it taxes everyone mercilessly. But instead of taking the necessary steps to rein in inflation, the Fed is wasting time talking about an “inclusive culture.”
If our concern is really for the most vulnerable in society, then inflation should be a top priority. Not only is inflation a hidden tax, but it’s also the most burdensome tax because it’s the most unfair. It falls disproportionately on those with lower incomes.
Many Americans with low or fixed incomes are simply unable to avoid the dramatic price increases on things like food and energy. Those same Americans also have few assets, like stocks, that can inflate in value and help ride out the inflationary wave. The result is a harsh increase in the cost of living. Energy prices have risen 30% and food prices are up 5.3% over the last year. No matter how high or low your income, these are things you need to survive.
But it gets worse.
As food prices rise, middle-class Americans alter their food selection to try and keep their grocery bills within their budget. That means a shift to relatively less expensive foods, like eggs for instance. But those are the very foods that are already purchased disproportionately by the poor.
The effect is an increase in demand for foods like eggs and chicken thighs, which further drives up the price. In the end, the poorest among us are squeezed the hardest by this inflationary vice. Sadly, the Fed appears to be less interested in protecting the poor than lecturing them about immutable characteristics like race, sex and creed.
A sermon on diversity will not help you heat your home this winter, especially not with fuel oil being 59.1% more expensive than a year ago. Dogmatic political speeches also do not pay for gasoline, which is 49.6% more expensive over the same period. Rhetoric is not even the job of the Fed — its job is to stabilize prices, and it’s failing miserably.
But the Fed can get back in the saddle very easily.
To stop the hidden tax of inflation, the Fed just needs to stop purchasing government bonds and let interest rates rise back to market-driven levels. For the Fed to ignore its responsibility to people’s economic livelihoods while engaging in political pandering is wrong.
Looking forward, Powell may not be renominated for a second term, in which case his replacement will probably be Lael Brainard, who is currently a governor on the Federal Reserve Board and is an avid advocate of Modern Monetary Theory. It’s reasonable to speculate that she will be even less concerned with inflation than Powell, in which case, it will be a move from bad to worse, at our expense.
E.J. Antoni, Ph.D., is an economist at Texas Public Policy Foundation and a Visiting Fellow at Committee to Unleash Prosperity.