Is Inflation Back?

Is inflation back in the saddle? As the Senate moves forward on confirming President Trump’s choice of Kevin Warsh to lead the Federal Reserve, today’s report of the consumer price index suggests the scale of the inflation confronting the central bank’s next chairman. Prices in April rose 3.8 percent over the prior year, reports the Bureau of Labor Statistics, the fastest pace since 2023, when the Biden wave of inflation was on the decline. “We’ve got an inflation problem in this country and we’ve got to get it back down,” warns the president of the Chicago Federal Reserve Bank, Austan Goolsbee. In April, too, wages rose by less than the rate of inflation over the previous year — 3.6 percent. That means working Americans are, for the first time in three years, losing ground to higher prices. It reminds why Mr. Warsh has called inflation a “silent tax” and the “most regressive tax.”More’s the reason, it would seem, for the Senate to advance Mr. Warsh’s confirmation to take the helm at the central bank, with the term of the incumbent chairman, Jerome Powell, due to expire on Friday. Mr. Warsh will be but one vote on the Fed’s governing bodies, including the Open Market Committee that sets interest rate targets, but he can be expected to bring a renewed emphasis on the need for stable prices. An effort by Mr. Warsh to curb inflation would mark a contrast with Mr. Powell’s apparent concern to ensure a steady increase in prices. That concern led the Fed in 2020 to revise the “inflation framework” it uses to set interest rates. Inflation at the time was running about 1.7 percent, Mr. Warsh has said. Yet to Mr. Powell, this was too low. “We had inflation below target,” he said, deeming it a “problem” that “the whole profession was trying to solve.” The central bank under Mr. Powell, to be sure, got its wish, and then some, as inflation — fueled by government overspending and President Biden’s pro-tax and regulatory policies — surged after 2021. By the summer of 2022, inflation soared to some 9 percent over the prior year. At the same time, the gold value of the dollar plunged below a 2,000th of an ounce. The greenback has since fallen further, currently fetching about a 4,400th of a gold ounce. The dollar’s weakness in terms of the historic basis of value, gold, suggests an opportunity for Mr. Warsh, these columns have averred. The incoming chairman has not mentioned gold, but has evinced a clear-eyed appraisal of the monetary role behind soaring prices. “Inflation comes about when the government prints too much,” he told the Senate, a reference to the Fed’s paper money emissions, “and broadly speaking the government spends too much.” It would, on that head, seem an apt use of Mr. Warsh’s bully pulpit at the Fed to encourage fiscal restraint on Capitol Hill. Mr. Warsh, too, will have his work cut out for him when it comes to scaling back the Fed’s bloated balance sheet. Under previous Fed chairmen this balance sheet surged per the bank’s Quantitative Easing efforts, and these monetary experiments are another factor fueling the inflationary wave of recent years.Mr. Warsh has said that, in a nod to a former Fed chairman, Paul Volcker, “you would need to have a Phd from an elite institution to believe that inflation doesn’t have something to do with money.” Indeed, while short-term considerations, like energy prices pushed by the Iran war, are a factor behind today’s inflation report, over the long run the best means of ensuring stable prices has proven to be a currency convertible at a fixed legal rate into gold.

Is Inflation Back?

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