During record inflation, Americans are looking to the country's most powerful bank. The Federal Reserve is meant to be the end all be all of inflation superpowers. But the Fed only has two tools in its toolbox. Raising interest rates and shrinking its balance sheet. And that might not be enough to defeat inflation. But the Reserve does not have to do it alone. Fiscal policy enacted by Congress. There are a lot of places Congress has much more targeted tools. And even power wielded by big business can help in the fight. But until all of these tools are fully utilized, fears of a recession may intensify. I think our biggest problem, at least for the foreseeable future, is high inflation. And so the big question mark is how quickly will inflation come under control? The Fed already raised interest rates five times in 2022 with more rate hikes on the way. So can its fellow inflation superheroes, Congress and the private sector, step up to the battle? The Fed has one important power or tool in its toolbox, and it's effective, but it can be super painful. Raising interest rates. Because sure, it slows inflation, but it can make the cost of borrowing higher for everyday Americans, and that can be just as painful as inflation,. A potentially less painful tool? Big business eating more of its costs rather than making consumers pay. Naturally, companies want to stay profitable, especially given the supply chain issues and pandemic closures. So some may opt to pass costs on to customers. That raises prices contributing to inflation. People started expecting higher prices and now some are pointing fingers at corporate greed, arguing that some companies are taking advantage of expectations and increasing prices even further than is necessary. According to the New York Fed, the more inflation an industry saw, the more gross profits increased. Now, most US companies are recording their largest profits since 1950, at least over the last two quarters. The Fed knows that inflation can be very, very hard to tame because when prices are going up, people demand higher wages. Companies then pass the price increase, the cost increase onto consumers and prices go up again. And it can go on and on and on like that. So people think inflation in the future is going to be higher. The reality is it probably will. Because I'm a worker, I go to my boss and I say, Hey, look, you've got to pay me more to get to work. You have to pay me more because of childcare costs or the cost of rent to live close enough to work, to get to work. And the boss says, no problem, because take that higher labor costs and I'll pass that through to my customer in the form of a higher price. You can see how you can get into this kind of self-reinforcing negative, what economists call wage-price spiral. One way that companies are passing on costs shrinkflation that's when products get smaller in weight, size or quantity, but prices stay the same or even increase. Guys, Shrinkflation is real. And consumers are catching on. That's like 25%. A survey shows that almost two thirds of adults are worried about shrinkflation. All right. These companies are pinching pennies on us, cutting down our oatmeal sized containers and making us pay the same price. How can companies so simply raise prices and still have customers? We can thank, in part, the consolidation of market power by a few large firms, leading to less competition. More than 75% of US industries have concentrated since 1990. So some economists suggest that fighting corporate greed should be part of the broader inflation response. The Biden administration recently passed the Inflation Reduction Act, and part of it takes aim at corporate greed, specifically on stock buybacks and exacting a 15% corporate alternative minimum tax for rich companies. You should not be using your profits to buy back stock or for dividends passing that money on to their shareholders, not to consumers. Ultimately, this would result in more revenue for the federal government over time. Rolling with the superhero analogy here. Congress has plenty of powers to Congress can pass policies that will ease prices. I mean, the administration has done a few things that have been helpful. So, for example, releasing lots of oil from the Strategic Petroleum Reserve have been helpful in keeping oil prices down. Policy has the potential power to lower health care costs, raise tax revenue, limit spending, promote work and savings and investment, and lower the costs of energy and trade. We as taxpayers eventually probably have to pay for them, but they can release a lot of pressure on families and businesses that are trying to pay the bills. Although taxpayers may have to foot the bill for government spending, economic relief can be targeted to specific areas. They don't just have to send out a check to everyone. They can send out a check to construction companies that will build at home. They can improve health care, but it's about making the system work more effectively so all these costs don't get piled up on individuals. That's what Congress can do. The Inflation Reduction Act was a $739 billion sweeping tax health and climate bill aiming to reshape the U.S. economy. The bill includes extensions of expanded health care subsidies and prescription drug pricing reform. For years, there's been no check on how high or fast big pharma can raise drug prices. But thanks to Inflation Reduction Act, that ends now. Now, the Department of Health and Human Services will be able to negotiate prices for some of the most expensive drugs covered under Medicare Part B and Part D. But relief won't be felt until 2026 and beyond. That's when prices seniors pay for those drugs could be cut by 25%, according to Bank of America analysts. Then there's the climate part of the bill meant to entice Americans to make energy efficient choices, like buying an electric car or upgrading their homes with discounts or tax rebates to be more climate friendly. So actions from Congress could help in the long run, but it doesn't seem to be having a big impact on the lives of everyday Americans right now. One estimate found the average U.S. household could net roughly $170 to $220 in annual savings over the next ten years. However, to avoid furthering inflation, economists say Congress should also not add to the deficit. That's the difference between the government's income and its spending. Easing the deficit is important in the fight against inflation because the more the government is spending to finance whatever it's doing, the more the government has to pay interest on that borrowed money. And as we know, the Fed is raising interest rates in hopes of quelling inflation. Deficit fell by $1.4 trillion, the largest one year jump in American history. While the Fed is trying to hoover money out of the economy, the federal government is still dropping money from helicopters, which could undermine that effort and make it have to go on for longer. For example, the Committee for a Responsible Federal Budget suggests Congress could end remaining COVID relief. It was also probably about almost $1,000,000,000,000 in COVID relief spending that is unspent and still up for grabs. And there are cities and towns and businesses that keep getting access to that money daily. I just spoke to a business owner who just got his employee retention credit checks now over $1,000,000, $26,000 per employee now that his business is fully recovered already. So he's looking at this money saying, who should I buy a warehouse? Buy a truck? There's quite a few superheroes that can step up in the battle against inflation, but it will likely take all policymakers and a little bit of luck. There is still a good case to be made that a recession is not inevitable. We don't need a recession. We need things to get back to normal. We need goods to get there. We need to really get under control. We need consumers to put off the purchases. We need a lot of things. We don't need a recession. We may end up in recession. The full impact of the Inflation Reduction Act has yet to come into fruition and corporations are still passing on some costs to consumers. So for now, all eyes are on the Fed. If interest rates get too hot, then housing and financial markets risk instability. The Federal Reserve has been raising interest rates. They've been talking a lot about raising interest rates, fighting inflation. But honestly, we don't know how much of an effect that's going to have broadly probably until next year. Sahm said Congress and the White House can have a big immediate impact on lowering tariffs and energy prices, while consumers could help by slowing down their buying of some goods and services. When they buy things from businesses, those businesses need to hire more. And so it becomes sort of this self-fulfilling prophecy, this kind of virtuous cycle. As Zandi said before, companies take higher labor costs and can pass them through to the customer. What economists call wage-price spiral. Raising interest rates could hurt more everyday Americans first before inflation comes back down to normal levels. The Federal Reserve has such a blunt tool. Right now, it's causing pain. There are some people who are losing their job. There are some people that otherwise would have gotten that raise. And that's that's frankly, we should not break inflation on the back of people who have less money.