Fed rate rises and government spending seen at loggerheads

Debt-to-GDP ratio

If interest rates remain elevated or continue rising, the interest could become one of the top three federal expenses, Maharrey wrote, adding that the US debt-to-GDP ratio stands at 121.85 percent.

On Wednesday the US House of Representatives approved a stopgap one-week funding bill, a move intended to give lawmakers more time to pass a bill to fully fund the federal government for the fiscal year.

Congressional negotiators announced on Tuesday that they had agreed on a framework for the bill. They did not reveal the amount they had agreed on, though it is expected to be about $1.7 trillion.

The measure was needed to avert a partial shutdown of federal agencies that would otherwise have begun on Saturday.

House Republicans opposed a full-year bill, saying they would prefer to vote on funding the government early next year when they take majority control of the chamber and will have more power to pare domestic spending.

The one-week extension was approved by a vote of 224-201, with all congressional Democrats and nine Republicans voting in favor.

Hill said that during the pandemic, emergency spending "was certainly helpful in cushioning the economic effects of COVID, but the federal government overdid it; and the Fed was persistently wrong in recognizing how its low-interest rate and quantitative easing would ensure that the excessive spending became inflationary".

"I think it is worth noting that the administration has argued that since inflation has been worldwide it can't have been caused by US government prodigality."

However, he said that contention is "only true to the extent" that governments and central banks elsewhere "have all made the same mistakes". Hill said that the case by the White House "also ignores the fact that the dollar is the world's currency for reserves and trade, so US inflation is transmitted throughout the world".

"When the Fed keeps US interest rates low, other countries must also have easy-money policies to prevent their currencies from rapidly appreciating relative to the dollar."

Ken Fisher, chairman of Fisher Investments, believes the central bank is missing signs of prices already receding.

"Take crude oil's price, an obviously important input. … But after March's peak, supply channels shifted, production grew and oil prices slowly stumbled — now off 42 percent to December 2021 levels," Fisher wrote in the New York Post on Tuesday.

"Energy helped drive a spike in consumer prices, but will now nudge us toward stability. The price of crude oil peaked in March but has steadily fallen after production grew.

"COVID-era supply chain snafus are abating everywhere. Shanghai freight rates fell 77 percent from January's high. America's logistics managers' index revealed transportation prices contracting while capacity remains ample."

Fisher said: "Others fret that tight labor markets are propelling inflation. Wrong. Nobel laureate Milton Friedman long ago proved wages follow prices — always — not the reverse. Regardless, payroll gains have slowed significantly."

Robert Reich, former US labor secretary during the first Bill Clinton administration, expressed concern over the Fed's persistent rate rises.