Price Pressure: Economist Warns Fed on Inflation

The Federal Reserve has taken a cautious approach to monetary policy, keeping the status quo in place even as inflation has continued to spike for months. With prices still rising unabated, that approach has some economists accusing the Fed of whistling past the graveyard. Among them is Peter Morici, columnist and professor of business at the University of Maryland, who warns in a new piece the Fed is much too passive when it comes to inflation. "Inflation has crossed the threshold from something that's transitory and a temporary impulse from COVID into something that is structural and long-lasting," he tells KTRH.

Morici warns that rising prices will lead to demand for rising wages, which creates a dangerous cycle. "When that happens, you get into a spiral," he says. "Businesses are already facing higher prices for imported components, now they'll face higher prices for labor...and as we learned in the 70s, once that wage-price cycle gets started, it's very hard to break."

The first action the Fed needs to take, according to Morici, is to end its bond-buying stimulus program immediately. So far, the Fed has only hinted at tapering back the program by the end of the year. Morici argues this easy money policy is only making the problem worse. "Pumping money into the economy won't give us more solar power, it won't give us more microchips to make cars," he says. "All it will do is bid up the price of the cars by putting more money in people's hands."

Ending the stimulus program and tightening up fiscal policy in general could help rein in runaway price hikes. But Morici doesn't see that happening anytime soon under current leadership. "What you've got are people that want to expand the government and a Fed chairman that wants to keep his job, who are basically procrastinating the country into stagflation," he says.

Photo: Getty Images North America

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