Fed Rate Hikes Misguided in Face of Global Supply-Side Inflation

The Federal Reserve recently raised its benchmark short-term interest rate by a quarter point, from 3.75% to 4.00%. This decision is expected to be followed by another quarter-point hike before the end of 2026.

According to conventional wisdom, the Fed is raising rates to combat inflation caused by excess demand for goods and services. However, the current inflation surge in the US is actually driven by a supply problem, not demand. The escalating global oil and energy prices are translating into higher costs for consumers, businesses, and the economy as a whole.

The Fed's rate hikes have little influence over supply-side inflation, especially when it involves the global economy. Global energy prices are rising due to Trump's war policies in the Middle East, sanctions, and trade policies, which are also contributing to the decline of the US dollar.