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Representative David Schweikert - Vice Chairman

Policy Solutions to Reduce Inflation

Policy Solutions to Reduce Inflation

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Key Points

The United States economy in 2022 faces sustained high inflation and slowing economic growth, largely due to demand-boosting fiscal policy and loose monetary policy.

  • The annual inflation rate in September 2022 was 8.3 percent, near a 40-year high, and the economy grew by less than a tenth of a percent over the first three quarters of 2022.

  • The American Rescue Plan (ARP) Act and other COVID response programs in 2021 boosted consumers’ incomes above what they otherwise would have been, fueling high U.S. demand in the face of supply constraints and increasing prices.

  • The Federal Reserve kept its monetary policy stance accommodative while inflation was picking up throughout 2021, further stoking demand in an environment of demand-driven inflation.

In order to reduce inflation, Congress should implement supply-side policy reforms that complement the Federal Reserve’s attempts to cool demand through monetary tightening.

  • Reducing government spending would tamp down on demand-fueled inflation, while at the same time restoring confidence in the ability of the federal government to pay down the debt and thus control inflation expectations.

  • Removing barriers to work through occupational licensing reform, increased work flexibility, and mitigating work disincentives in tax and transfer programs would increase labor force participation, thereby reducing the cost of production for firms.

  • Deregulation of energy, housing and other markets would reduce the regulatory burden on businesses, lowering the cost of domestic production and bringing down prices.

  • Removing barriers to international supply by reducing tariffs and eliminating regulatory barriers like the Jones Act and Foreign Dredge Act would provide consumers access to cheaper goods and increase the resiliency of supply chains.

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