Fed’s inflation control dilemma telling sign of US’ political malady

In a think tank event last week, US Trade Representative Katherine Tai downplayed the possibility of significant US tariff reductions on Chinese goods to check the United States' 40-year-high inflation, even though she had mooted that idea not long ago.

Despite her shilly-shallying, it is common knowledge that the trade-war tariffs the US imposed on its largest trade partner have directly pushed up the prices of commodity in the US, stoking inflation.

But rather than lifting the tariffs, the US is taking advantage of its dollar hegemony to try and transfer the costs of addressing its economic woes to the rest of the world.

The Federal Reserve raised US interest rates by 50 basis points last week, pushing the dollar to a 20-year high, triggering a fall in the renminbi, the euro and the yen.

The exchange rate of the renminbi against the dollar has depreciated rapidly from late April, close to 5 percent over the past half a month, and it is Chinese foreign trade enterprises that bear the brunt of that.

Yet it will be quite difficult to ease inflation by simply raising interest rates alone, since inflationary pressure is generated by many factors, for example labor withdrawal.

Although the unemployment rate in the US is as low as at 3.6 percent, there were 11.5 million job openings as of the end of March. Which means there are two job openings for every unemployed person in the US, suggesting that withdrawal from the labor force is getting worse.

The irony is that the US always blames the rising inflation on other countries, China in particular, while "exporting inflation" itself.

Although Tai knows that lifting tariffs on Chinese goods would be the correct choice, the rigidity of the Joe Biden administration's China policy greatly reduces her operating space.

US policymakers don't take the global economy into account in their reckonings. The raging novel coronavirus, which the US has notably and tragically failed to control, has rattled the recovery of supply chains with endless uncertainties.

And the sharp fluctuations in global food, energy and commodity prices caused by the Ukraine crisis are also beyond the Fed's reach. Being unable to reconcile the economic interests of the US with the global situation, of which Washington has been a key shaper, the Fed can't make the right decisions.

If the US really wants to tame inflation and improve its labor and technology efficiency, the key to boost quality growth, it needs to lift its controls on the free flow of talents and technology, remove its protectionist barriers, end its punitive tariffs on China's exports, and stop trying to rewrite the rules of the global market system.

Partisan politics have made professionals helpless puppets, which explains why US policies keep boomeranging, harming the US economy and its interests.