Who is to blame for inflation? The Fed, not Biden, says this expert

If you’re feeling flustered by high inflation, a meltdown in the markets, and the increasing likelihood of a recession, you’re not alone. And you’re likely wondering where you should be directing your ire.

President Biden may seem like the obvious choice, given that he and the Democrats effectively have control over the federal government, including the White House, the House of Representatives, and a razor-thin majority in the Senate. But Christopher Leonard, a journalist and author of the new book The Lords of Easy Money: How the Federal Reserve Broke the American Economy, says that Biden isn’t to blame.

The Federal Reserve is.

“We are in a moment of crisis, it’s likely going to be ugly, and there’s no easy way out of this,” Leonard tells Fast Company.

“All of this stuff is hitting in the year of a midterm election, and conventional wisdom says that Democrats will get demolished,” he says, but “this problem has been 10 years in the making—the fact that the stock market is crashing right now has little to do with who’s in the White House.”

Leonard, who also wrote a recent op-ed on the topic for The New York Times, says the current crisis is being made immeasurably worse by the fact that the Federal Reserve, back in 2010, got Wall Street and the economy at large hooked on “easy money”—effectively, a combination of 0% interest rates and quantitative easing programs, which pumped trillions into the markets over the course of many years.

And, instead of taking its foot off of the gas as the economy improved after the Great Recession, the “easy money” persisted, inflating asset prices. The Fed was then left with no way to raise interest rates or start tapering off its asset purchases without freaking out Wall Street and causing a market meltdown, much like is currently happening.

“The Fed tried to tighten previously,” Leonard says, when it increased rates starting in late 2015.

But that came to a head in late 2018, when markets saw a big decline, causing the Fed to reverse course and start cutting again. “During the period between 2016 and 2019, [Janet] Yellen and Jerome Powell came in with an agenda of normalizing raising rates and reducing the Fed’s balance sheet. But as they did it, the markets reacted,” he says, “leading to the ‘Powell pivot’ in January 2019. They backed off and couldn’t normalize.”

That was when it became clear, Leonard adds, that the Fed was steering the economy into uncharted waters. A few months later, in 2019, the Fed was actively lowering interest rates all while there was no inkling of a coming recession—the “easy money” would continue to flow to keep the markets (and the White House at the time) happy. Now, though, it’s time to pay the piper, as the Fed has no choice but to raise rates to tame inflation, which is causing the markets to fall, and could very well lead to further economic contraction.

“If we had displayed more wisdom in the 2010s, we wouldn’t be in such a terrible predicament,” Leonard says. He does note that, for people who want to try and hang the current economic mess on President Biden, that the additional $1.9 trillion in pandemic stimulus that the Democrats passed in 2021 could have added to inflation, but that it was merely “the caboose on a train of $4 trillion under Trump.”

Even so, Biden will likely pay the political price in the years ahead for inflation, the bear market, and a recession that may or may not happen. Leonard does stress, however, that voters should try to look deeper at the causes of the crisis, which he believes are squarely at the feet of the Fed.

“At the end of the day, this is not Biden’s fault,” he says. But come election day this fall, “all the Republicans have to do is stand on the sideline and point in order to win.”