Fed Alone Can't Tame Inflation

Inflation remains a persistent problem in the US economy, despite efforts by the Federal Reserve to curb it. The Consumer Price Index rose 0.4 percent over the past month and 3.4 percent over the last 12 months, exceeding the Fed's 2 percent annual target.

A new National Bureau of Economic Research paper found that during a period of high inflation from 2021 to 2024, firms handed out cost-of-living raises, while 43 percent of workers who didn't change jobs saw reductions in real wages. This has significant implications for the economy and highlights the importance of addressing inflation.

Experts argue that Congress must play a crucial role in tackling inflation by committing to a credible deficit target and restoring expectations around future debt sustainability. Trimming deficits by half will be a challenge, but considering the threat inflation poses, it is worth doing.