The voices of Tax Policy Center's researchers and staff
Barack Obama looks at the U.S. economy and worries about recession—which he would cure with a $50 billion stimulus bill. Increasingly, Fed Chairman Ben Bernanke looks at the same economy and sees inflation—which he would treat by raising interest rates.
This is, to say the least, a problem.
An Obama-like second stimulus would only add to inflationary pressures and force the Fed to start jacking up rates sooner rather than later. More troubling, this conflict could be joined well before the election, since congressional Democrats are talking about proposing such a stimulus bill as soon as July. Even John McCain, who usually resists such things, is hinting that another economic boost might be necessary.
Who is right? We are at one of those places in the economy where either analysis could be correct. Or, heaven forbid, they both could be (remember the stagflation of the 1970s). But even in the unlikely event that both diagnoses are correct, we can't fix these symptoms with both surgery and a blood thinner. We have to pick one or the other.&
I get that Obama and the Hill Dems think they can win points by bashing the “Bush recession.” It is much sexier than fretting about inflation, since the only fiscal policy cure to that problem is cutting consumption—something no pol wants to talk about in high campaign season. But having politicians and the Fed acting at cross-purposes in coming months is counterproductive at best and exceedingly dangerous at worst.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.