Inflation's Persistence, the Fed and Expansionary Fiscal Policy

Sharp changes in trade policy and the potential for another round of elevated inflation demand a look at how the interaction of fiscal and monetary policy can lead to persistent inflation.

With inflation well above the Federal Reserve’s 2% target and rising, and expansionary fiscal policies about to kick in, calls for rate cuts may be premature.

Cutting rates while inflation is still rising tends to hurt real disposable income and bond valuations and create conditions for a weak dollar. In addition, if investors conclude that the Fed is unwilling to intervene in the economy to maintain price stability on a sustained basis, inflation expectations may rise further, and persist. Read RSM’s article on the subject here.