For the first time since 2018, the Federal Reserve moved to increase its key interest rate Wednesday, (3/16/22), by a quarter of a percentage point. “The economy no longer needs — or wants — these, this very highly accommodative stance,” said Fed Chair Jerome Powell, as he signaled the Reserve’s intent to make six more similarly sized increases in 2022, an effort economists believe will help combat a 40 year high in inflation.
Historically, the move is likely to decrease inflation—over time. It’s also likely to increase criticism of President Biden, in the short term, as consumers shoulder the burden of higher interest rates on their mortgages, car loans, student and credit card debt, on top of, let’s face it, having the very existence of that burden wielded in their faces at all times by members of the Right Wing mediaverse.
Yet, the interest rate increase does need to happen. Put in simplest terms by investopedia.com:
“In general, as interest rates are reduced, more people are able to borrow more money. The result is that consumers have more money to spend. This causes the economy to grow and inflation to increase.”
“The opposite holds true for rising interest rates. As interest rates are increased, consumers tend to save because returns from savings are higher. With less disposable income being spent, the economy slows and inflation decreases.”
And the Biden Administration does need to champion these rate increases, even if they’re perfectly aware that they’ll be used against the Administration in the short (and maybe intermediate) term.
(Spoiler alert: so will literally anything else they do—so there’s that.)
The reasons why are multifold. First is that it’s the right thing to do. Not morally, or ethically—although it well may be those, too—but because it’s the right thing to do economically. Consumer spending has been slowed by rising inflation, but it remains well above pre-pandemic levels. And until spending slows, there isn’t time for supply side shortages to balance out.
Second is that it’s strategically savvy. All too often the Right Wing Propaganda Machine is allowed to dominate narrative creation, especially when it comes to economics. American respondents to pollsters still prefer the GOP to Democratic positions on the economy by a wide margin, despite substantial evidence that Democratic Presidential Administrations are actually better for the economy than Republicans ones. This is because of how RWPropaganda dominates the national conversation regarding economics.
It’s a foregone conclusion that the next few weeks will bring us an avalanche of Tweets, like these:
The challenge for a Biden Administration that is putting America’s economic interests above its own political ones in real time, will be to own the narrative. To make a compelling case to Americans about exactly what it is they’re doing, and why.