The Fed Doesn’t Deserve All the Blame for Inflation by Kenneth Rogoff


The U.S. Federal Reserve certainly bears its share of the blame for the Great Inflation of the 2020s. But powerful political pressures from the left and overly optimistic analyzes of open-ended debt policy, not to mention the real uncertainties about inflation and real interest rates, also played a very important role.

CAMBRIDGE — A growing crescendo of commentary blames the current inflation spike in the United States squarely on the Federal Reserve. But much of the criticism is stunningly naive about the political pressures the Fed and other central banks around the world have faced in recent years.

In the United States, pressures on the Fed peaked when Democrats, eager to put progressive ideas into practice, took control of the White House and Congress in January 2021. Yes, the Fed has significant independence in many dimensions, but it does not have nearly the same institutional independence as, say, the European Central Bank.

Instead, the Fed is a creature of Congress that can, in theory, be radically transformed in the short term. It is important to note that the term of the Fed Chairman always expires one year after the start of a new Chairman’s term, and Chairman Joe Biden’s administration was able to make several other Fed appointments as well. Although the idea of ​​”Fed Packing” (adding new positions to skew the central bank’s voting majority) never gained traction, Fed officials surely took notice of the Biden administration’s discussion of the advisability of countering the conservative majority of the Supreme Court of the United States by increasing the number of justices.

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