Welcome to the Biden Stagflation

Biden’s fiscal policy coupled with the shockingly irresponsible Federal Reserve monetary policy have caused the economic problems with have today.

The Bureau of Economic Analysis just released its estimate for GDP growth in the first quarter of 2022. Real GDP declined at an annual rate of 1.4%. Since inflation is running at an 8.5% annual rate, the US has entered a period of stagflation. This is a condition not seen since the late 1970s. Is Biden the new Jimmy Carter?

Stagflation is the most difficult problem for government policy to fix. That’s because action to stimulate economic growth will increase inflation. And action to reduce inflation will slow economic growth even further.

The current stagflation problem is entirely a result of government policy. The Biden administration’s fiscal policy added so much excess demand to the economy that inflation increased. The Biden administration’s policy of restricting the supply of energy significantly increased energy prices, forcing consumers to pay more for gasoline, oil and natural gas.

Higher Prices Across the Board

It also means businesses must pay more for energy to produce their output. Retailers also must pay more, since nearly all of their products are shipped via trucks that have incurred higher gasoline costs.

Additionally, to prevent COVID-19 from sending the U.S. economy into a recession, the Biden administration also gave free money to unemployed Americans. That meant many did not return to work, even when their employers called them back. That contributed to a labor shortage, which drove up wages, further increasing costs for businesses.

The shockingly irresponsible monetary policy of the Federal Reserve has also contributed significantly to the inflation problem now facing the United States. Instead of tightening the money supply and raising interest rates when there were clear signs of inflation in the first quarter of 2021, the Fed continued its $120 billion monthly bond buying program.

Even more shockingly, the Fed continued to keep interest rates near zero until just last month, when it finally raised the Fed funds target rate, near zero, by 25 basis points.