“The Federal Reserve and the Treasury are pursuing a concerted policy which should bear fruit”
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En finance, the fundamental rule is to look ahead and not procrastinate. This is also what needs to be done on the inflation front. And the evidence is obvious: the Americans do the job. Admittedly, there were many mistakes: first, the Fed, the central bank, believed that inflation was only temporary and waited until March to start raising its rates. Above all, Joe Biden threw gasoline on the fire with its recovery plan useless March 2021, as the economy rebounded. But since then, everyone has done their job. The Fed, which had never sunk into the European absurdity of negative rates, took its short-term rates from zero to 2.25% in a matter of months.
The federal government is tightening the budgetary screw, unlike the Europeans, who are increasing the measures to support the purchasing power of their population, and the public deficit is in free fall. It is expected to decline to 4% of gross domestic product for the fiscal year ending September 2022, after 15% in 2020 (under President Trump) and 12.4% in 2021 (under Biden). This massive ebb is explained by the end of aid linked to Covid-19 and the good tax revenues due to the surge on Wall Street. Joe Biden boasts of his orthodoxy: the remark can make you smile, this virtue being partly explained by his inability to have investment and social plans adopted as massive as hoped. Nevertheless, the Fed and the Treasury are de facto leading a concerted policy, tough on the budget, less strict on the money, which should bear fruit.
The Biden administration is trying to end bottlenecks in the economy, with massive subsidies to the microprocessor industry, increased traffic at California ports and infrastructure aid. The Fed is not lying to itself in claiming that inflation is only due to problems of supply or imported inflation against which the hike in rates would be powerless – a study by four economists of the New York Fed, Harvard and the University of Maryland shows that inflation would have been, at the end of 2021, 6% instead of 9% without the bottlenecks, which nevertheless leaves a contribution 60% to excessive demand.
As a result, inflation in the United States seems to have peaked this summer, with annual price increases falling from 9.1% in June to 8.5% in July. The price of a gallon of gasoline, which had exceeded 5 dollars (5 euros) in the spring, has fallen back to around 3.80 dollars, and when the motorist goes, everything goes.
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