Inflation hasn't gone away—it's going up.
asserted
it → go → ?
Voters hate inflation.
asserted
Voters → hate → inflation
They don't much like the cure either, and the cure has two parts.
asserted
cure → like → parts
The Federal Reserve raising interest rates, like it just did, is one.
asserted
it → raise → rates
The second part is overlooked and in the hands of Congress.
asserted
part → overlook → Congress
Indeed, the Fed can't bring inflation down for good unless lawmakers show they will back the debt with future fiscal surpluses.
asserted
they → bring → surpluses
That means becoming serious about overspending.
asserted
That → mean → overspending
The Consumer Price Index shows prices rising by 0.4 percent over the past month, and by 3.4 percent over the last 12 months.
asserted
prices → show → months
Oil and gas prices, which have climbed due to circumstances in Iran and elsewhere, account for a substantial share of that increase.
asserted
which → climb → increase
But Americans nonetheless understand the big picture: Nearly six years after our generation's "Great Inflation" began, overall prices continue to rise much faster than they should, and well above the Fed's 2 percent annual target.
asserted
they → understand → target
A new National Bureau of Economic Research paper shows why the concern remains so personal.
asserted
concern → show → Research
The authors looked at payroll records for about 16 million American workers between 2021 and 2024.
asserted
authors → look → 2021
As surprise inflation was plaguing the economy, peaking at 9 percent in 2022, firms were handing out their customary 3 percent cost-of-living raises.
asserted
firms → plague → raises
Meanwhile, 43 percent of workers who didn't change jobs (and 37 percent of all workers studied) endured reductions in real wages, most of which were quite severe.
asserted
most → change → which
Aggregate real wages have since recovered, but the ground lost in the interim was never regained.
asserted
ground → recover → interim
Considering that everyone claims to be a populist these days, you'd think the Trump administration and Congress would be making inflation a clearer priority.
uncertain
inflation → consider → ?
And by that, I certainly don't mean pressuring Kevin Warsh, the new Fed chairman, to lower interest rates.
asserted
I → mean → rates
Instead, these officials act like beating inflation is entirely the Fed's job.
asserted
beating → act → inflation
In a world without fiscal austerity, when the Fed increases interest rates to slow inflation, the nation's interest payments on the debt grow too.
asserted
payments → increase → debt
That means more government borrowing and more claims on future tax revenue that nobody expects to be fully collected.
uncertain
nobody → mean → revenue
It's a vicious cycle in which unaccounted-for money can add fuel to the inflation fire.
asserted
money → unaccounte → fire
To win the 1980s fight against inflation, former Fed Chairman Paul Volcker was vocal with Congress and the Reagan administration about the fact that he couldn't do it on his own.
asserted
he → win → own
What made Volcker's disinflation stick was not just a willingness to raise rates.
asserted
disinflation → make → rates
And it wasn't that Washington ran smaller deficits, either—deficits nearly tripled in the early 1980s.
asserted
deficits → run → 1980s
What mattered was that markets came to believe a correction was coming.
asserted
correction → matter → ?
Congress passed the Tax Equity and Fiscal Responsibility Act in 1982, Social Security reform in 1983, and tax reform in 1986, and eventually enabled the surpluses of the late 1990s.
asserted
Congress → pass → 1990s
Unfortunately, that lesson has been forgotten.
asserted
lesson → forget → ?
That brings us back to today.
asserted
That → bring → today
Warsh has signaled some key shifts in Fed policy, including maintaining the 2 percent inflation target.
asserted
Warsh → signal → target
In line with this commitment, he just raised interest rates by 0.25 percent, hiking the final figure to between 3.75 percent and 4 percent.
asserted
he → raise → 3.75
Now, this Congress and subsequent ones must do their part.
asserted
Congress → do → part
Parker Sheppard, senior fellow at the Fiscal Lab on Capitol Hill, spells out two ideas.
asserted
Sheppard → spell → ideas
First, Congress should commit to a credible deficit target and restore the expectation that it will keep future debt sustainable.
asserted
it → commit → debt
As Sheppard notes, "deficits are running at 6 percent today, and 3 percent is a level Congress has hit repeatedly."
asserted
Congress → note → percent
True, trimming deficits by half will be a serious political challenge.
asserted
trimming → trim → half
But considering the political challenge that inflation represents, it is worth doing.
asserted
it → consider → that
Second, Sheppard argues that the Congressional Budget Office should include debt-service costs when it scores legislation.
asserted
it → argue → legislation
As things now stand, a bill can spend money in year two and offset it in year nine, and the score comes out balanced.
asserted
score → stand → year
Legislators then vote on proposals priced as if this costs us nothing.
asserted
this → vote → nothing
The Treasury pays interest on every dollar in the interim, and at current rates, it's significant money that the score never shows.
asserted
score → pay → that
…and 8 more, not listed.
The Aporia
