In an effort to curb record inflation, the Federal Reserve has rapidly raised interest rates from zero to four percent over the course of just seven months. After announcing a fourth consecutive 0.75 percent rate hike earlier this month, Federal Reserve Chairman Jerome Powell delivered a stark, yet determined message: “I just think that the inflation picture has become more and more challenging over the course of this year, without question. That means that we have to have policy being more restrictive, and that narrows the path to a soft landing.” Translation: The Federal Reserve is committed to breaking the back of inflation, even if it means plunging the U.S. economy into a recession.
Energy prices are a substantial component of the consumer and producer price indices. The cost of natural gas and crude oil — the main ingredient in gasoline — directly affects prices for goods and services across much of our economy. That is because oil powers the trucks, ships, planes, and trains that transport the goods we buy online and in person at the store. Oil and natural gas are also essential ingredients in plastic, meaning they are used to make or package much of what people buy. Simply put: lower energy prices mean lower inflation.
This administration can help the Fed in its fight against inflation by reversing its flawed energy policies.
Shortly after taking office, the new administration canceled the Keystone XL pipeline, paused all new federal offshore and onshore leasing, and suspended leasing in the Arctic National Wildlife Refuge. More recently, President Biden’s Interior Department published a report calling for fewer leases, increased royalties and a more onerous bidding process. And just this past spring, his Federal Energy Regulatory Commission issued a policy inhibiting new pipeline production in the United States.
The administration’s actions have had a chilling effect on both domestic energy output as well as investment in new projects and associated infrastructure. Prior to the pandemic, in November 2019, the U.S. was producing 13 million barrels of crude oil per day. Today the U.S. is producing 11.9 million.
The good news is it is not too late to change course.
The president can lower energy prices by reversing his executive orders, eliminating the burdensome rules and regulations imposed by his agencies, and pledging to work with industry to rapidly ramp up domestic oil and gas production. While this would pave the way for increased energy output in as little as a few months, Americans will likely see a decline in gas prices much sooner.
That is because energy is priced in the global marketplace on the expectation of future supply. By embracing a new policy aimed at maximizing U.S. production, this Administration can change expectations, which will reduce prices in the immediate future.
Lowering the price of energy will help curb inflation, provide families with some much-needed relief, and enable employers to continue hiring. The White House can do that today by unleashing American energy production.
Elaine Chao was the 24th U.S. Secretary of Labor and 18th U.S. Secretary of Transportation and the first Asian American woman to be appointed to a president’s Cabinet.