We’ve dedicated a considerable amount of attention within our weekly written missives addressing inflation. Of late, inflation has stalled even while Federal Reserve policies remain restrictive. Here’s what the two Fed tools of interest rates and balance sheet assets looks like:

As can be seen, the Fed has been forceful and relentless in its pursuit of curbing inflation. Despite this, inflation progress has stalled. Why? We have stated we believe the primary cause is profligate Federal spending, As the Federal Reserve has been intentional, the elected policy makers in Washington DC have not. Here are some charts depicting Federal spending policies:

There is no question in our minds that the Federal Budget is out of sync with Federal Reserve policies. They are competing against one another, and Federal spending is working AGAINST the inflation fighting policies of the Federal Reserve. To bring inflation down, either Federal Reserve policies will need to become even more restrictive to countervail Federal spending or Federal spending will need to be reduced. Given the sheer magnitude of budget deficits, the growing debt, and accelerating interest expense, the spending policies seem unsustainable. Even so, it is an election year and the elected officials are “priming the pump’” We don’t see the spending equation changing any time soon unless it is brought on by crisis conditions. Thus, if the economy doesn’t cool, then we think the odds favor the Federal Reserve being forced to do even more with its rate and balance sheet policies.