by Alexander William Salter
The American Institute for Economic Research
In the Wall Street Journal, James Mackintosh argues the Fed doesn’t deserve credit for the recent decline in inflation. Disinflation occurred “mostly because of things the Fed has no control over, as normality returned after the pandemic,” he writes. Instead, supply-side improvements explain easing price pressures. The best that can be said for the Fed, according to Mackintosh, is that it refrained from stoking a dying fire.
Mr. Mackintosh’s arguments fail. On the demand side, he overlooks the crucial driver of inflation, which is nominal spending (current-dollar GDP). On the supply side, he confuses the level of prices with the growth rate of prices. It’s abundantly clear that the Fed has contributed to disinflation, and that supply-side factors are largely secondary.