The inflation discussion is being carried out by two groups with opposing political viewpoints. Are politics obscuring the facts? Of course. Each group presents only part of the picture.

One side argues that the Federal Reserve’s “money printing” is the sole cause of inflation. Their solution? Have the Fed sell off some of its bond holdings and effectively “burn” the cash it receives.

This is a valid and powerful tool. Selling bonds removes money from the system. Thanks to fractional reserve banking, every billion dollars withdrawn through bond sales can reduce the money supply by as much as ten times. When banks receive deposits, they loan out 90%, and that money continues to circulate through repeated lending and re-depositing. Removing cash at the source slows this cycle.

In short, when the Fed sells bonds, it extracts money from circulation, limiting how much banks can lend. This, along with higher interest rates, helps reduce inflationary pressure.

This group also insists that government spending and rising debt are not inflationary by themselves. It’s only inflationary when the Fed finances that spending by expanding the money supply.

The opposing group highlights different culprits: supply chain disruptions, the war in Ukraine, climate-related challenges, and oil company behavior in anticipation of stricter environmental regulations. These are real factors — and they can drive up prices even if the money supply remains stable.

There’s another wrinkle: inflation is not evenly distributed. Not everyone feels it the same way. For example, rising new home prices primarily affect a subset of the population. But those same higher prices may lower demand, which in turn can drive down the cost of materials for home renovation — providing relief elsewhere.

So, who’s right?

Both groups are. And both are wrong — if they claim theirs is the only cause. We are currently seeing the effects of both: years of monetary expansion now colliding with the limits of industrial efficiency, which had long helped hold inflation in check.

Today, we are responding with a blend of both strategies: monetary tightening and efforts to address supply-side constraints. That may be the best path forward.

Katz Family Financial