America’s economic ambition should reach well beyond slowing price increases. We should be expanding what this country can produce and what its people can achieve. The Federal Reserve should hold interest rates steady in October while it assesses September’s increase. Before making capital more expensive again, officials must account for the businesses, homes and opportunities that investment can build.
The Fed has already heard how rising costs can stand in the way of progress. Richmond Fed trucking contacts reported that expensive diesel had led some carriers to postpone buying more fuel-efficient trucks. Those trucks could lower operating expenses for years. Instead, money that could have improved the business was needed to meet the cost of keeping it running.
That is a problem an inflation strategy must confront. A business needs the means to become more efficient, especially when its costs are rising. Making the next investment harder to finance can delay the very improvement that would help it manage those costs. The consequences reach its customers, its employees, and the businesses that depend on its deliveries.
Inflation deserves the Fed’s full attention. Consumer prices rose 3.7% over the year through September, and producer prices jumped 1.3% that month. Price increases also appeared beyond food and energy. Families cannot build a secure future while essentials consume more of their earnings. An economy that delivers growth must protect the value of what people earn.
The Fed must explain how higher borrowing costs would address the pressures actually driving inflation. Its own reports show higher diesel costs spreading through supply chains as fuel surcharges. Those charges can raise the prices of groceries, building materials, and other goods. Excluding energy from an inflation measure does not remove fuel costs embedded in those prices. Higher rates can restrain spending, but they cannot directly expand fuel supplies.
The room for another financing burden also depends on what people are experiencing now. September brought just 29,000 additional payroll jobs, with downward revisions to the previous two months. Real average hourly earnings fell 0.5% during September. For someone trying to get ahead, slow hiring and shrinking purchasing power mean fewer opportunities and harder choices. Further restraint would also reach those households.
Housing brings that concern home. Single-family permits fell 4% in September and were 4.8% below a year earlier. One month cannot establish a trend, but builders identify financing and construction costs as obstacles. A family needs a home it can afford, and someone must be able to finance its construction. America’s affordability strategy must make room for both.
Kevin Warsh has described business investment as “the seed corn of future economic growth.” He is right. The Fed’s September statement described robust capital investment and strong productivity growth alongside resilient spending. Those investments represent businesses putting their money behind America’s future. Their success can mean better jobs, lower production costs, and more opportunity. That future belongs in the Fed’s calculation alongside the spending those investments generate today.
That is why a pause makes sense when officials meet on Oct. 27 and 28. September’s rate increase remains in place. Before raising rates again, the Fed should explain how much further inflation relief it expects, how long that relief would take, and what investment and employment it could put at risk. The benefits and costs deserve the same scrutiny.
Waiting carries risks, too. Inflation that becomes entrenched can demand more painful action later. A pause must therefore come with clear conditions for reconsideration, including persistent broadening of inflation, worsening longer-term expectations or evidence that demand is outrunning productive capacity. Holding steady now preserves the ability to respond as the evidence develops.
Congress and the Trump administration must do their part. Faster permitting, reliable energy, and fewer obstacles to home construction can help turn investment into production. Businesses need confidence that an approved project can actually get built. The country needs the additional capacity those commitments can deliver.
Americans should be able to look beyond paying the next bill and see something worth working toward. A home of their own. A better opportunity at work. A business with a future they can help build. The Fed’s next decision should preserve the investment that brings those ambitions closer. Growth is how we expand that possibility.
SPENDING MORE IS NOT THE SAME AS GETTING AHEAD
I keep returning to the Fed because its decisions can change whether businesses expand, homes get built, and people find opportunities to get ahead. This piece makes the case for holding steady in October while assessing September’s increase, with clear conditions for reconsideration.
The larger argument is about America’s ambition: controlling inflation while sustaining the investment that makes lasting growth possible.
Dan Varroney is an economic strategist, founder and CEO of Potomac Core, and author of Rethinking Economic Growth: How Small Businesses Can Help Consistently Grow the Economy.
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[ H/T Washington Examiner ]
