Congressional Deficits, Federal Reserve Complicity, and Inflation

This paper analyzes the cause-and-effect relationships between the Fed’s balance sheet and consumer prices, and between the federal government debt and the Fed’s balance sheet during the period 2008Q1to 2021Q4. Although contemporaneous Fed purchases of public and private sector debt and increases consumer prices were highly correlated, the evidence suggests that excessive government spending was the root cause of the general increase in consumer prices. The Fed’s role during this period appears to have been that of bankrolling federal government deficits and the federal debt. While the Fed could have moderated the general increase in consumer prices by reducing or curtailing quantitative easing and allowing interest rates to rise, it chose not to. The result was the effective control of monetary policy by profligate politicians in Congress