THAT ’70S SHOW: Get Ready For Price Controls If Inflation Jumps.

If inflation persists, and the Fed caters to political pressure to keep rates near zero to finance the growing federal debt and prop up asset prices, it would be tempting for progressives to call for price controls. Those controls would be dressed up as a temporary measure to stabilize prices and win votes, but they would not address the underlying inflationary pressures stemming from excessive money growth and fiscal dominance.

Fed governors Lael Brainard and Randal Quarles have assured us that the Fed has the tools to counter inflation—namely, increasing interest on reserves (IOR) and selling assets to reduce the size of its massive balance sheet. Yet, it may be politically difficult to use those tools: any significant increase in IOR to ward off inflation—paying large banks billions of dollars to park reserves at the Fed—would be untenable; and any call for tapering could cause a tantrum on Wall Street, just as in 2013. The Fed does not want to risk throwing the economy into recession by raising rates, but if it stands still inflation could worsen.

The view from here looks like Biden will give us repeats of the worst of both Nixon and Carter.