The Federal Reserve hiked its core interest rate for banks once again by another 0.75 percent to a range of 3.75 percent to 4 percent on Nov. 2 as high consumer inflation persists in the U.S. economy, and prepared markets for more rate hikes to come until the inflation gets under control.

According to the Fed’s statement, “The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

[The new core interest rate is] lower than it was in 2007 at a time when inflation itself was much lower, but the Fed might still be feeling a bit shell-shocked from the last time it needed to hike interest rates.

Surely, the Fed wants to address inflation — housing prices are up 10.3 percent year over year as of the third quarter of 2022 according to the U.S. Census and the Department of Housing and Urban Development — but it also does not want to spark deflation.

Usually, when the Fed is lowering interest rates, the money supply accelerates with inflation. When it hikes interest rates, the money-supply growth slows down along with price increases, an analysis of Bureau of Labor Statistics and Federal Reserve data shows.

In 2020, the federal government spent, borrowed, and printed about $6 trillion to combat COVID, [while] at the same time the Fed took interest rates down to near-zero percent — a massive torrent of money creation at the same time global production had ground to a halt. Then with all the extra money floating around, demand immediately picked up again, but production had not.

Where do you think all the inflation came from? But how to unwind it is a better question. The extra money has to be destroyed.

But if the money supply contracts too quickly, so will prices, again eating up home equity as in the 2000s. On the other hand, home sales are already contracting and prices slowing down in the near term. Existing home sales have also collapsed 27.4 percent since January 2022 to 4.7 million annualized, according to National Association of Realtors (NAR) data. 

By backstopping mortgage securities since 2008, the Fed should be more able to address core inflation concerns without worrying it could upset the apple cart, whereas in the 2000s perhaps the infrastructure was not there to deal with the massive feedback this might cause if the credit system was not functioning as it should and defaults were driven by homeowners’ decisions to walk away from their mortgages.

The question does not appear to be whether interest rates need to be hiked at the Federal Funds Rate level, but by how much, and how quickly. With inflation over 5 percent since June 2021, the Fed has already waited to hike rates past that of the consumer inflation rate.

In the meantime, U.S. consumers are already paying higher interest rates, with 30-year mortgages going for more than 7 percent. It’s the banks’ interest rate that is being kept artificially lower. This will cause U.S. consumers to spend more of their own money to service debt, which eventually the Fed will eat when the banks have to pay their own credit costs via higher interest rates.

What normally happens is a recession intervenes, unemployment goes up, demand drops, and prices then cool off — which is what the Fed appears to be waiting for.

But the danger of not conceding the recession now by, say, hiking rates past the inflation rate, as in every other economic cycle since World War II, [is that] inflation could again worsen, potentially prolonging the cycle and leading to an even larger recession later. Either way, with interest rates rising for the foreseeable future, that means we will all be paying off the COVID debt for some time to come.        

Robert Romano is the VP of public policy at Americans for Limited Government (ALG). The organization says it is a “non-partisan, nationwide network committed to advancing free-market reforms, private property rights, and core American liberties.” 

After the dust has cleared [from the midterm elections this year], Congress will be narrowly divided, and President Joe Biden will have to work hard to govern effectively. Whether he can do so will depend on plenty of different factors, but none will be more important than his relationship with members of both parties in Congress. 

To the extent that Americans think about how national policy is developed, they tend to focus on the president and his positions. Congress often has its own agenda, of course, but there’s no question the president is usually the chief actor, laying out an agenda, proposing a budget, driving media coverage. Still, the president is not all-powerful: To achieve his goals most effectively, he has to work with Congress, which will often debate, change, and sometimes reject them.

In recent decades, as Congress has grown more divided and partisan, frustrated presidents have sought an end-run, exploring the use of executive orders and other unilateral approaches to setting policy. And as former presidents of both parties have discovered, once the White House changes hands, one of the new occupant’s first priorities has been to reverse his predecessor’s actions. If you’re interested in sustainable policies that will last longer than an electoral eyeblink, the road runs through Congress.

Taking it won’t be easy. If both chambers turn Republican, there’s a decent chance the new majority will spend the next two years doing everything it can to undermine Biden’s presidency. If the chambers split, with Republicans running the House and Democrats the Senate, substantive legislating may take a back seat to maneuvering for the 2024 elections. 

Yet even if gridlock and partisan tension might be on the docket, they don’t have to be. Biden did depend entirely on his party for the climate change and other policies embedded in the Inflation Reduction Act, which passed along strict party lines. But it was an exception in a surprisingly productive Congress. Most of the major steps Congress has taken recently, whether on guns or health care for veterans or strengthening U.S. technological capacity, have been hammered out and passed by coalitions of Democrats and Republicans. Common ground, in other words, is possible.

The challenge will be to get there. And on that front, much of the weight will be on the Biden administration’s shoulders.

For one thing, the president will have to take the lead and do what needs to be done to encourage or entice political leaders in Congress to work in a bipartisan way. He’ll need a strategy for this, since it’s likely to put him at odds with some members of his own party — party loyalists and policy activists don’t like seeing their leaders reach across the aisle to get work done — and put Republican leaders at odds with members of their own party.

One key to achieving this is to have a structure in place that makes it easier: clear lines of communication between the White House staff and congressional leaders, staff on both sides who know one another and have experience working with one another, and a president who doesn’t just make himself accessible to key members of Congress, but knows how to listen and adjust to meet congressional demands. On all these fronts, the past two years could serve as prologue.

Regardless of party, as Americans we should all hope that the Biden administration and congressional leaders can pull it off. Over the course of a long career watching national policy get made, I’ve been impressed by a simple fact: the more bipartisan it is, the better its chances of lasting. On the whole, Americans want commonsense approaches to resolving our problems. Even on tough issues like immigration and police reform, there’s common ground. The challenge our leaders face is to agree to inhabit it.        

Lee Hamilton, 91, is a senior advisor for the Indiana University (IU) Center on Representative Government, distinguished scholar at IU Hamilton Lugar School of Global and International Studies, and professor of practice at the IU O’Neill School of Public and Environmental Affairs. Hamilton, a Democrat, was a member of the U.S. House of Representatives for 34 years (1965-1999), representing a district in south-central Indiana.