Julian Zelizer: Inflation rate for July had fallen relative to previous months. But the underlying data suggest this could just be the calm before the coming economic storm, he says. Food prices rose by 1.1 percent last month, making them 11 percent higher than they were a year ago. Housing prices are the most ominous indicator of future, stubbornly high inflation, Zelizer says. The Federal Reserve is likely to continue its pattern of hiking the discount rate in 0.75 percent jumps, he adds. Zelizer writes: Americans are spending down their pandemic-era record savings, but still have trillions of dollars left in the bank. It will take a few more months of drawing down their bank balances before they will have to start cutting back.
The historic relationship between the Fed’s discount rate and inflation was clear before the 2008 financial crash. The Fed usually kept its rate above the inflation rate before then, providing savers with a low, but positive, real rate of return. The last American president who tried that approach in an economic crisis was Herbert Hoover.