Both the growth and the inflation figures are extremely positive, even though both the right and the left still insist the economy sucks (more on the latter in a future post). Unimaginative commentators are giving the credit to the Fed. Should they?
The Fed didn’t fix the supply chain problems, or nudge consumers back to more normal spending patterns after the end of the pandemic. It didn’t even cause the price of housing to decline, as interest rate increases resulted in a reduction of homes on the market. The most you can say for the Fed is that it has managed the expectations game properly, and it did the obvious thing in raising rates when real rates were negative due to the dislocations caused by the virus. On balance, there is little reason to give the Fed much credit here.
The best answer to the credit question is “nobody and everybody,” but Biden and the Democrats are actually entitled to some recognition here. Yes, the pandemic relief bill was somewhat inflationary, but the excess savings provided a cushion from the negative impacts of the interest rate increase. In other words, we might well have had the recession that was predicted over and over again (but not by me) but for those savings, which, along with high asset prices, are still fueling the economy today.