The Federal Reserve, under the leadership of outgoing Chair Jerome Powell, has attributed recent inflation spikes to temporary factors like the Iran oil shock and Trump-era tariffs. However, economist William Luther argues that the Fed is missing the mark. 'Powell is blaming transitory forces again, just like he did with supply chain disruptions in 2021,' says Luther, an associate professor at Florida Atlantic University. 'The real issue is excess spending in the economy.'
Inflation Surge
The latest Consumer Price Index (CPI) report from the Labor Department reveals a concerning trend. Inflation rose 0.6% in April, following a 0.9% increase in March. Over the past 12 months, the CPI has surged 3.8%, nearly double the Fed's 2.0% target. The Producer Price Index (PPI) also indicates worsening conditions, with raw material costs jumping 1.4% in April—three times the forecast.
'The fundamental problem is that more money is chasing the same number of goods,' Luther explains. 'We have an aggregate demand issue, not a supply disruption issue.'
Root Causes
Luther identifies government spending as a key contributor to inflation. The Congressional Budget Office projects federal outlays to rise 6% in fiscal year 2026. Additionally, massive investments in AI data centers, projected to reach nearly $1 trillion this year, are fueling the fire. Consumers, particularly the affluent, are also spending heavily on dining, health, and wellness, emboldened by a booming stock market.
From December to February, GDP grew at an annualized rate of 2.66%, while total spending surged 6%. This 3.34-point gap between output and spending translates directly into inflation. The Fed's failure to address these underlying issues could lead to a repeat of the inflationary crises seen in 2021 and 2022.