Inflation Is Stubborn. Is the Federal Budget Deficit Making It Worse?

A crucial question is hanging over the American economy and the fall presidential election: Why are consumer prices still growing uncomfortably fast, even after a sustained campaign by the Federal Reserve to slow the economy by raising interest rates?

Economists and policy experts have offered several explanations. Some are essentially quirks of the current economic moment, like a delayed, post-pandemic surge in the cost of home and auto insurance. Others are long-running structural issues, like a lack of affordable housing that has pushed up rents in big cities like New York as would-be tenants compete for units.

But some economists, including top officials at the International Monetary Fund, said that the federal government bore some of the blame because it had continued to pump large amounts of borrowed money into the economy at a time when the economy did not need a fiscal boost.

That borrowing is a result of a federal budget deficit that has been elevated by tax cuts and spending increases. It is helping to fuel demand for goods and services by channeling money to companies and people who then go out and spend it.

I.M.F. officials warned that the deficit was also increasing prices. In a report earlier this month, they wrote that while America’s recent economic performance was impressive, it was fueled in part by a pace of borrowing “that is out of line with long-term fiscal sustainability.”

The I.M.F. said that U.S. fiscal policies were adding about a half a percentage point to the national inflation rate and raising “short-term risks to the disinflation process” — essentially saying that the government was working at cross-purposes with the Fed.

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