Chaos Is Costly. The Fed Can’t Fix It.

Uncertain Times Call for Different Measures

The latest Consumer Price Index data suggests that—despite skyrocketing egg prices—inflation as a whole continued to cool in February, to 2.8 percent year over year, and was trending toward the Fed’s 2 percent target. But consumer expectations and economic forecasts are looking gloomy as the administration’s chaotic policy agenda unfolds.

Amid economic uncertainty, consumer sentiment plummeted last month. Roosevelt Senior Fellow Sameera Fazili spoke to The Guardian this week about one recent destabilizing force—Trump’s back-and-forth tariff threats and their impact on business: “When you have such a high level of uncertainty, and have a set of policies that seem to impact every part of the economy . . . it leads to businesses essentially being frozen. They’re not able to make investments. They’re not able to make plans. They’re not able to make hiring decisions.”

In addition, housing costs—the biggest monthly bill the majority of Americans pay—remain stubbornly high and continue to account for half of the monthly increase in inflation.

These are issues that the Fed’s tools aren’t equipped to solve, as Roosevelt experts explored this week:

• In a deep dive on shelter inflation trends since 2020, Roosevelt’s Ira Regmi explains why using monetary policy to address housing prices tends to be ineffective.
  • “In theory, raising interest rates can lower housing costs by cooling the labor market, reducing job growth, and potentially decreasing rent prices through higher unemployment,” Regmi writes. But not only does that approach harm vulnerable populations, “a broad relationship has emerged in the long run whereby higher rates ultimately lead to lower housing supply” by discouraging homebuyers from taking out mortgage loans and developers from financing new construction.
  • Solutions to the affordability crisis should instead focus on establishing public developers to finance affordable housing, facilitating higher-density development, and building enhanced infrastructure, as well as protecting the rights of tenants and low-income communities.
• In Barron’s, Roosevelt’s Alí R. Bustamante analyzes new research indicating that spending from high-income consumers is what’s driving a significant portion of inflation—especially in markets where supply is slow to adjust, such as housing, vehicles, and airline travel.
  • The richest 10 percent of Americans are responsible for nearly half of consumer spending, and the typical policy tool kit—interest rate hikes from the Fed—isn’t enough: “Higher interest rates make mortgages, auto loans, and credit-card debt more expensive for everyone, while barely denting consumption at the top.”
  • To help balance the economy with less collateral damage, Bustamante suggests progressive taxation. “If we want to cool these top-driven pressures without hobbling the rest, it may be time to dust off the idea that higher taxes on the wealthiest—rather than universal rate hikes—can foster a more stable, equitable economy.”

The Critical Need for No-Fee Public Banking

Having a bank account might not be as top of mind for policy advocates as the rights to housing, health care, food, and other daily needs. But for millions of Americans, it’s a necessity for navigating modern life that remains out of reach. In a new Roosevelt report, researchers Sarah Stoller and Raúl Chávez share findings from focus groups of unbanked and underbanked California residents with the goal of informing the design of CalAccount, the state’s promising proposal for no-fee banking.

“Our capitalist economy relies on private banks and other financial institutions to provide what is in fact a critical public service: free and unencumbered access to our money and fair participation in the systems that store and manage it,” Stoller and Chávez write. As one respondent summed up the importance of banking to US life, “Nothing is done here if you don’t have credit.”

Californians shared their struggles with overall accessibility as well as exorbitant fees, fines, and penalties. One focus group participant shared the story of depositing $19 into their mobile account but accidentally typing in $16: “Those two things didn’t match, so they closed my entire account for that. Like, no discussion, no appeal, no anything. And it took a month to get my money back.” Another participant talked about the difficulty of waiting for a check from their new job to clear: “I called and they told me [it would take] ‘About five days.’ I said, ‘Where will my rent come from?’”

Based on their discussions with underbanked Californians, Stoller and Chávez recommend that CalAccount take into consideration the importance of public trust in government when designing their banking system—which would require reforming the welfare benefit and public debt collection systems.

Read the report: Eliminating Barriers to Bank Accounts: How CalAccount Can Ensure Financial Inclusion and Serve as a Model for Public Banking

What We’re Talking About

What We’re Reading

• Roosevelt Author-in-Residence Miranda Yaver wrote about the trials of navigating US health insurance, drawing upon her own research to illustrate how claim denials subject sick patients to even more paperwork, frustration, and stress.
  • Yaver told The Week about an immunodeficient patient who was denied medication because her insurer didn’t think her condition was life-threatening: “It was a mind-boggling assessment,” Yaver says.
• Although DOGE claims it has so far saved $100 billion, its cuts to the Internal Revenue Service could deprive the public of $400 billion more in tax revenue over the next decade.
• Roosevelt’s Chief Economist Joseph Stiglitz spoke to The Nation about policy reforms to curb the ability of vulture funds to prey on the sovereign debt of Global South countries. “Money spent on servicing foreign debt is money that’s not available for development.”
• As the federal government stalls on renewable energy efforts, publicly owned utilities are one key avenue for states to take charge, decarbonize, and continue the fight against climate change, Sandeep Vahesan writes in The American Prospect.