Richmond Times-Dispatch: Congress acts on heels of Fed in effort to bring down prices

RICHMOND TIMES-DISPATCH, MICHAEL MARTZ

The day after the Federal Reserve Bank dramatically raised a key interest rate to curb inflation, Virginia politicians and economists looked for a path to lower gas and food prices, stronger domestic supply chains and an economy that’s growing instead of shrinking.

The outlook is uncertain because the challenge is unique after a once-in-a-century pandemic upended the global economy and challenged more than a decade of U.S. monetary policy, said Kent Engelke, chief economic strategist and managing director of Capitol Securities Management Inc. in Richmond.

“We have never been where we are right now,” he said Thursday.

While some economists warn of “stagflation,” signifying high unemployment, lower economic growth and inflation, Engelke predicts what he calls “boomflation,” with low unemployment and higher growth that is offset by inflation.

“That is technically a recession,” he said.

In Congress, Rep. Abigail Spanberger, D-7th, led a successful push in the House of Representatives to adopt a legislative package aimed at boosting ethanol use in gasoline, helping cattle farmers and small meat-packing companies, and cracking down on anti-competitive practices by the big meat processors.

The House voted 221-204 on Thursday to adopt the Lower Food and Fuel Costs Act, a collection of bills aimed at lowering fuel and food costs, including one Spanberger introduced to bolster oversight of the meatpacking industry to prevent shortages leading to price spikes at the grocery counter.

All four Republicans in Virginia’s congressional delegation voted against it, though its measures included some GOP sponsors.

“Prices at the pump and at the grocery store, it’s still a pretty tough time for people,” said Spanberger, who faces a challenging political environment for Democrats as she seeks re-election to a third term in a newly drawn congressional district in November.

“It’s kind of an all-of-the-above approach,” she said.

After inflation rose by 8.6% in May, the highest level in four decades, the Federal Reserve raised its benchmark short-term interest rate by three-quarters of a percentage point on Wednesday and promised to push it higher to reduce inflation but not push the U.S. economy into recession.

In the short term, higher interest rates will make borrowing more expensive for home and automobile purchases, Spanberger acknowledged. “My expectation, based on the numbers, is it will have an important impact in terms of cooling down core inflation.”

But Engelke said it’s not clear how the aggressive move will play out, as the Fed shifts from more than a decade of buying debt to spur growth after the Great Recession and the COVID-19 pandemic to shedding it from the federal balance sheet.

“How is this going to work when you go from your biggest buyer to your biggest seller?” he asked.

Inflation is being driven primarily by soaring oil, gas, food and housing prices that are hard to control with global supply chains disrupted by the pandemic and the fallout from Russia’s invasion of Ukraine.

Engelke said most of the increase in oil and gasoline prices occurred before the invasion, largely because of what he considers the over-regulation of the fossil fuel industry to combat climate change, but he said the ongoing war and economic sanctions will make it harder to restore depleted fuel supplies.

“What are you going to do with the absence of Russian oil?” he asked.

Spanberger’s legislative solution, which now goes to the Senate, is to expand production and use of corn-based ethanol in gasoline “to provide a bridge” to restoring refining capacity for gasoline that has been lost since the pandemic began more than 27 months ago.

A member of the House Agriculture Committee, she said she wants to help farmers by lowering fertilizer costs while expanding opportunities for cattle farmers and small- to medium-sized meatpacking companies.

“The bottom line for our farmers has just gone down, gone down, gone down,” she said.

The good news, from Engelke’s perspective, is a return of what he calls “economic nationalism,” as companies stung by broken global supply chains return manufacturing of key products — such as semiconductor chips for automobiles and consumer appliances — to the U.S.

He hopes the trend will move money from Wall Street to Main Street, where small businesses can benefit more from the goods they produce and sell.

“I think we’re going to have a stronger and better country because of it,” Engelke said, “but it’s going to be ugly.”