America’s inflation hawks are always prone to crying wolf. Since they spent the post-2008 years forecasting hyperinflation that never arrived, it was no surprise that so few people sat up when they issued the same warnings last year. Now the hawks are right but for the wrong reasons. The recent US inflation surge has little to do with the Federal Reserve’s easy money, as they claimed. Democrats should nevertheless resist letting their ingrained scepticism cloud their sense of self-preservation. Sustained inflation could ruin their chances of holding on to power.
Historically, inflation has done far greater damage to leftwing governments than to rightwing ones, even when the blame should be evenly divided. Republican Richard Nixon did as much as his Democrat predecessor, Lyndon Baines Johnson, to stoke inflation in 1972 when he bullied the Fed chair, Arthur Burns, to cut rates in the build-up to his re-election. It was Jimmy Carter, a Democrat, who sent inflation-slayer Paul Volcker to the Fed, which contributed to Carter’s 1980 defeat. The beneficiary, Republican Ronald Reagan, tried unsuccessfully to get Volcker to cut rates in the build-up to his 1984 re-election.
President Joe Biden’s reappointment of Jay Powell last week ought to reassure markets that he values the Fed’s independence. Powell withstood pressure from the Republicans’ Donald Trump to keep rates low before the pandemic.