The Federal Reserve, Biden, and Congress Face the Unthinkable

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  • 09/21/2022

The biggest reason the U.S. economy is an increasingly confusing mess is simple: the Federal Reserve is trying to slow down the economy while President Joe Biden and the congressional Democrats are feverishly trying to stimulate it.

The minutes of the July meeting of the U.S. Federal Reserve Board, released on August 17, show the governors and Chairman Jerome Powell are losing enthusiasm for the ongoing interest rate increases the Fed has imposed this year to combat the worst rate of inflation in more than four decades.

That is good news. Unfortunately, even if the Fed changes course (which is not quite imminent in any case), its efforts will be stymied by what President Biden and congressional Democrats have been doing.

“Mr. Powell described 0.75-percentage-point rate rises as ‘unusually large’ and appeared to endorse projections made in June that showed rates rising by another percentage point through December, implying a slowdown in the pace of increases later this year,” The Wall Street Journal reports.

That is an improvement. There is no sensible reason to punish Americans any further in response to Biden’s inane policies, which have raised oil prices. The American people have suffered high and rising gasoline prices for more than a year because Biden did all he could to shut down U.S. oil production, starting on his very first day in office, which made us vulnerable to the global supply shock that occurred when nations around the world refused to buy Russian oil and natural gas in response to the Ukraine invasion.

Two years earlier, you will recall with some nostalgia, the United States was energy-independent for the first time in decades, and an exporter of oil and natural gas.

Sensing an urgent need on the part of U.S. consumers, the Fed “lowered gasoline prices” by stalling the economy. That is not what most people hope for when they hear the words “stabilize prices.”

To be fair, the Fed’s options are limited, after years of zero interest rates and “quantitative easing” inflicted by former chairs Ben Bernanke (2006 to 2014) and Janet Yellen (2014 to 2018), the latter now doing additional major damage as Biden’s Treasury Secretary.

Meanwhile, the Fed looks positively Solomonic in comparison with the Biden administration and congressional Democrats. The leftist pols infesting the nation’s capital are trying hard to stimulate the economy. That is meant, of course, to increase their bleak prospects of sustaining a congressional majority that can continue ransacking the economy and regulating us into pre-Industrial Revolution poverty.

That’s the reason for the Democrats’ weird choice to raise government spending dramatically during a strong economic upswing last year, and give it further jolts this year. Goodies for all, and more votes for Democrats from a grateful nation, according to their scenario.

Hiking spending without offsetting it with additional government revenue increases the federal budget deficit. This puts upward pressure on interest rates and inflation alike, which even the Biden administration realizes is not good.

What’s more, raising taxes during a recession is a proven way to worsen an economic contraction. Of course, we are not in a recession, if Biden and his puppet masters are to be believed.

Apparently, they do not believe it either. Their brilliant solution: increase federal tax revenues by hiring 87,000 Internal Revenue Service agents. This will only further suppress productive economic activity, placing still-more pressure on the federal budget (by reducing tax revenues below projections) and the hapless Fed.

Reducing productive economic activity is a recipe for a recession or, a prospect unthinkable until recently, a depression. The Fed might hope to prevent that through a return to “loose” monetary policy, but that will certainly unleash even worse inflation thanwhat we have seen thus far.

The only real solution to the problem is for the federal government to cut taxes and spending significantly—by at least $2 to $3 trillion.

However, that is the one thing that is truly unthinkable in the nation’s capital.

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