Power & Market

Powell: How Do We Get Rid of Inflation?

After raising the Funds Rate by 75-basis points last week, Jerome Powell, Chair of the Federal Reserve, gave candid opinions regarding inflation and the detrimental effects on households. It’s rare to agree with a central banker; yet here we are. In his own words:

So, for starters, people are seeing their wage increases, their wage increases eaten up by inflation. So if your family is one where you spend most of your paycheck, every paycheck cycle, on gas, food, transportation, clothing, basics of life, and prices go up the way they've been going up, you're in trouble right away. You don't have a cushion and this is very painful for people at the lower end of the income and wealth spectrum. So, that's what we're hearing from people is very much that inflation is really hurting.

Amazing! This is the type of real-world economic analysis we desperately need. He acknowledges that in spite of higher salaries, the benefits from wage increases are devoured by inflation, or more succinctly: the purchasing power of the dollar is decreasing. While some may have higher bank account balances, it affords them less.

He also acknowledges that many family’s paychecks barely cover basics such as gas and food, and that when “inflation” occurs the impacts are felt immensely and immediately. He’s made it clear he grasps the concept.

Seems weird though. If it’s so obvious, why maintain policies explicitly perpetuating inflation?

Powell then confesses, he has no clue how to stop inflation:

So how do we get rid of inflation? And as I mentioned, it would be nice if there were a way to just wish it away but there isn't.

Incredible! We should send him a copy of journalist and economist Henry Hazlitt’s “What You Should Know About Inflation,” which offers many viable solutions. Powell could also study the countless other Austrian economists who have vehemently spoken out against inflationism as a policy tool for the last 100 years. If that isn’t enough, perhaps reflection on the last century of failed monetary policies: perpetual dollar depreciation, the relentless boom/bust cycle, and ever increasing disparity between America’s have and have nots; in which the haves benefit from large subsidies, bailouts, and access to new money programs at society's expense. However, there seems no legitimate intent to correct course.

It's the year 2022 and the Federal Reserve is still trying to unlock the mysteries of inflation, one of the most documented catastrophic policies for quite some time. Even in 1958 Mises reiterated:

The most important thing to remember is that inflation is not an act of God; inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy

The Fed claims diligence when it comes to meeting their arbitrary 2% annual inflation rate; but it comes at a heavy cost. The stock market will crash and a recession will be announced. Yet, no one can legitimately claim whether 2% inflation again is even possible. Of course, if we miraculously get there, it won’t matter anyway. The Fed will still exist.

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Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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