The Federal Reserve, suggests Dr. Ron Paul, former congressman, and presidential candidate, will never raise interest rates to levels that would be appropriate for a free market because doing so would make borrowing unaffordable for the overly indebted federal government. He writes at the Ron Paul Institute (abridged):
The Federal Reserve’s recent 0.75 percent increase in its “benchmark” interest rate is the Fed’s highest rate increase since 1994. This increase is a sign that the Fed has finally realized that price inflation is more persistent and widespread than the Fed initially believed.
Stocks have fallen much lately. This is in part because of fears rate hikes will push the economy into recession. The Fed itself seems to believe that the economy is going to slow down in the near future, as it has reduced its projection of 2.2 percent economic growth in 2022 to 1.7 percent. Even more ominously, the Atlanta Fed’s GDP tracker fell to zero for the second quarter of 2022, due in part to May’s weak retail sales.
The Fed claims it will reduce inflation without significantly increasing unemployment or causing a recession. This is likely to be as accurate as the Fed’s prediction that inflation was “transitory.”
This latest rate increase will only raise rates to where they were before the lockdowns led the Fed to embark on a historic money-creating spree. The Federal Reserve cannot increase rates to anywhere near the level they would be in a free market because doing so would increase interest payments to unsustainable levels for debt-ridden consumers, businesses, and the federal government.
Despite the skyrocketing debt and the Fed’s role in creating inflation, there are few in Washington committed to spending cuts. Congress is currently getting ready to authorize an across-the-board spending increase for next year. Meanwhile, the US government is spending tens of billions of dollars this year related to Ukraine, and the Biden administration is still pushing for massive new domestic programs.
By Ron Paul, MD, Ron Paul Institute
Dr. Ron Paul is a former member of Congress and Distinguished Counselor to the Mises Institute.
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