Because the Fed instituted the "Taylor Rule" in calculating the interest rate.
The Taylor Rule stipulates that for each one-percent increase in inflation, the central bank should raise the nominal interest rate by more than one percentage point.
The Republican methodology of stimulating the USA economy with large quantities of money for political purposes was causing inflation and the Fed was attempting to remedy the inflation, but, the problem was the SOURCE of inflation was political and not financial.
To the right is a graph of the Consumer Price Index. The Bush years were all over the place and while the GOP was bragging about increase in job numbers, the actual economy was buoyed by government spending and war spending.
May 14, 2011, 11:35 AM
During the Bush years, (click here) I used to get triumphant letters from conservatives saying things like, “You say Bush’s policies are bad, but the economy added 110,000 jobs last month” — as if that was a big number; they had no idea what good job creation looks like....
...Do you remember a lot of hysteria about runaway inflation in, say, September 2005, when prices were 4.7 percent higher than they had been a year earlier? I don’t; I remember things like this:...
