Jerome Powell Claims Spending Doesn’t Drive Inflation

On Wednesday’s panel at the ECB Forum on Central Banking in Sintra, Portuga, Federal Reserve Chairman Jerome Powell argued that high levels of government expenditure did not contribute to higher inflation.

The Inflation Reduction Act, American Rescue Plan, Infrastructure Act, and the Children’s Health Insurance Program Reauthorization Act were all signed into law within the first two years of the Biden administration, as indicated earlier by Eisen.

As President Joe Biden advocated for the American Rescue Plan, many economists warned that the plan’s large government spending might lead to inflation. $86 billion went to different unions, $350 billion to state and local governments, $160 billion to healthcare connected to COVID-19, and the overall cost of the measure that Biden signed into law in March 2021 was $1.9 trillion.

Former Treasury Secretary and Obama economic advisor Lawrence H. Summers expressed concern about the possibility of inflation in an opinion piece published by The Washington Post in February 2021. Inflation was also a concern for former Obama administration official Steve Rattner.

Rattner said his forty years of price-watching have proven to be ultimately fruitless so far. But now that Congress looks sure to approve $1.9 trillion in new expenditure under the American Rescue Plan Act, his concerns have returned.

After an increase of 4.9% in April, the Consumer Price Index (CPI) increased by 4.0% in May. There was a monthly peak of 9.1 percent CPI increase in 2022.

Rapid price increases, according to Mr. Powell, Mr. Biden, and their advisors, are being caused by factors such as supply chain disruptions, an oil shock as a result of Russia’s invasion of Ukraine, and a shift in consumer spending away from services like dining out and travel and toward goods like furniture.

Mr. Powell is also blaming the low unemployment rate.

He says that a part of the high inflation is likely related to an extremely tight labor market.

It’s anything but government spending, according to Powell.