Sky-High Inflation Is the Price of ‘Too Much Stimulus’: Obama-Era Economic Adviser

Wall Street financier Steven Rattner, who would later serve as head of the Auto Industry Task Force under former President Barack Obama, attends an event in New York City, on Nov. 18, 2009. Neilson Barnard/Getty Images for Fortune Magazine

Steven Rattner, who served as an adviser to the Treasury Secretary under the Obama administration, told CNBC in a recent interview that “too much stimulus” by the government and the Federal Reserve is to blame for soaring inflation.

Rattner, who made the remarks during a Sept. 14 broadcast of MSNBC’s “Morning Joe” program, said that Americans are now “paying the price” after the government “went too far in trying to mute the effects of the pandemic” and the Fed set its monetary dials to ultra-loose.

Fierce debate has taken place about what led to prices accelerating at their fastest pace in decades, with some—including many members of the Biden administration—mostly blaming supply-side constraints. Others—including many Republicans—have pointed the finger at unprecedented levels of fiscal and monetary spending.

What has been an inflation-fueled cost-of-living crisis for many Americans was driven mostly by a stimulus-fueled demand surge, although supply-side bottlenecks made the problem worse, a team of economists concluded in a recent study.

‘We Overshot the Mark’

Rattner’s remarks add to the chorus of voices that say too much demand-stoking stimulus played a major role in pushing inflation to multi-decade highs.

“We’ve had this extraordinarily quick recovery, thanks, in large part, to government efforts, government stimulus, and other things that we had to do, cutting interest rates to zero, but now ... we overshot the mark,” Rattner said.

“We kind of went too far in trying to mute the effects of the pandemic, too much stimulus … too much low interest rates for too long by the Fed, too much buying of bonds by the Fed, and now we’re paying the price,” he added.

His remarks came on the same day that a report from the Department of Labor detailed price dynamics from the perspective of input costs to businesses, which tracks inflation before it hits consumers. The report shows underlying inflationary pressures rising in August, suggesting inflation could stick around for longer.

The so-called core Producer Price Index (PPI), which excludes the volatile categories of food and energy and is a measure of underlying, or “sticky,” inflationary pressures, jumped by 0.2 percent in August. That’s a faster pace of month-over-month core business cost growth than the 0.1 percent recorded in July, suggesting underlying inflationary pressures were building again after three consecutive months of easing.

‘Inflationary Pressures Remain’

The PPI data came a day after core consumer price inflation data was released by the BLS. The core Consumer Price Index (CPI) gauge, which similarly strips out food and energy to reflect underlying inflationary trends, surged 0.6 percent month over month in August, twice the pace in July.

“Like yesterday’s #CPI report, today’s #PPI report shows that inflationary pressures remain,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, in a statement on social media.

The headline CPI index, which is a measure of inflation from the perspective of consumers, clocked in at an annual 8.3 percent in August, according to BLS. That’s a slightly slower pace of inflation than July’s figure of 8.5 percent.

An alternative measure of inflation that calculates price dynamics using the same methodology that was used in the 1980s, puts the CPI inflation figure at an annual 16.5 percent in August. In July, the alternative gauge showed prices accelerating at 16.8 percent.

Economists at the International Monetary Fund (IMF) warned in a recent note that, when inflation is already high, any energy price shocks risk sparking a “sustained wage-price spiral through a feedback loop between wages and prices.”

This, in turn, could fuel persistent rises in both inflation and future inflation expectations, they said, which could push central banks to tighten monetary settings aggressively and raise the risk of an economic downturn.