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Federal Reserve’s Historic Decision - Analysis
Yesterday the Federal Reserve raised interest rates by .75 percent – the biggest increase we’ve seen by the Fed since 1994 – in an attempt to combat rising inflation and the falling stock market.
Obviously, an increase in rates will likely have an effect on the housing market, and other borrowing-based industries. But the overall thought behind a move like this is that by making money more expensive to borrow, consumers will spend less, forcing prices to come back down. But there are others who believe, justifiably, that this could just make things worse. Especially as the Fed contributed to this mess, and it seems now like they may have waited too long for an interest hike to help.
As ACLJ Director of Policy Harry Hutchison explained:
"The Fed got us in this mess to some extent because they essentially expanded the money supply by three or four fold over the last five or six years. Now some of this was driven by the pandemic. And then you also have a large portion of government spending that was driven by the pandemic. So I think what the Fed is now saying is we are beginning to go into a hole, so we need to stop digging.
I would have increased the interest rates. I probably would have gone up fifty basis points as opposed to three-quarters. I would have also done it much sooner. I think if you had done it sooner, then you could have moderated the inflation rate."
He’s absolutely right. The Federal Reserve was too slow to the gate to deal with this. A modest increase in the interest rate six months ago might’ve lessened the blow and even tempered some of this down. In addition, a little foresight on the part of the Biden Administration and proactive policy decisions might have prevented the predicament the American people are struggling with now.
We all see how this inflation affects our daily lives. We spoke with a caller who said he’s had to stop funding his 401K for the time being just to be able to pay the bills and provide for his family. And he’s not alone. American families are having to make tough choices right now. I posed the question to all ACLJ members as to whether they’re finding themselves forced to make different decisions with their money right now, out of concern for what’s happening economically. How are the energy crisis and supply chain issues that are driving up prices affecting you?
ACLJ Senior Advisor for National Security and Foreign Policy Ric Grenell joined us to offer his analysis of the current economic crisis and echoed what we always say at the ACLJ –
elections have consequences and bad policies create bad results:
"I have to say that the Democrats for most of my life have tried to, and maybe you could argue successfully ‘own’ the middle class and young people, where they were able to say ‘we’re for the working class.’ I think the whole thing has flipped. I think Donald Trump brought in an emphasis on the working class. In middle America, there are people who are union members, who are struggling paycheck to paycheck, and they saw their lives be so much better under Donald Trump. Taxes were cut. Gas was low. Their 401K was just exploding. And they looked at the world and they heard Donald Trump say other people around the world, allies, need to start paying their fair share. Don’t rely on American taxpayers to pay everything.
That really allowed the stock market to say ok maybe we’re going to start spending on our own infrastructure, we’re going to start spending on our own situation, our own people. And that in turn bred a huge stock market increase, faith in the American system. That has all imploded under Joe Biden and now what we see on a daily basis is people filling up their cars and it’s way too expensive. Their 401k is imploding. And the biggest thing is fear about the future. That’s what the Democrats have given us."
We will see how this rate hike affects prices around the country, and if it really does have a positive effect. But it is only one step. There is much for this Administration to do if they really want to provide relief to the American people.
Today’s full Sekulow broadcast includes even more in-depth discussion of this move by the Fed and the impact it could have on struggling American families.
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