Dear John,

Yesterday the Federal Reserve enacted its second consecutive 0.75 percentage point interest rate increase -- its most aggressive push in three decades -- to “dampen demand” and slow down the economy.

While I understand the Fed’s urgency to act, it is entering dangerous territory. Rapidly rising interest rates will likely lead to a recession, which will create massive unemployment and be especially harmful to people who are most vulnerable to downturns in the economy -- the same people struggling the most from rising prices.

In reality, the Fed’s strategy of raising interest rates will do little to address the main drivers of huge price increases that are squeezing Americans’ already tight budgets:

• Huge pent-up worldwide demand from two years of pandemic

• Shortages of goods and services responding to that demand

• Putin’s war in Ukraine

• Monopolistic corporations jacking up prices to maximize profits

The Fed also assumes that price increases are being driven by wage increases -- so-called “wage-price inflation.” That’s FALSE. Wages are lagging behind inflation. Meanwhile, CEO pay is skyrocketing (see fourth bullet point above).

While the Fed isn’t addressing the right culprit, Congress can still lessen the burden of rising prices by passing a windfall profits tax on excess oil and gas profits. It’s time for Congress to tax windfall profits now!

Friends, this should be a no-brainer. In fact, Britain’s Conservative government already announced a 25% windfall tax on oil & gas profits. It will be used to support $19 billion in assistance for low-income households struggling with cost of living increases. If Britain’s Conservatives can do it, so can we.

It’s not just the UK.

In Italy, a 10% windfall profits tax was raised to 25% to help families keep their energy bills around where they were in 2021, while also providing about $200 in direct payments to poorer families and investing in renewable energy. In Spain, a windfall tax was passed all the way back in September of 2021, allowing them to reduce the value added tax on energy bills from 21% down to 10%. Romania and Bulgaria also designed their own windfall profits taxes.

All of these countries have one thing in common: they’re spending big to provide tangible inflation relief for working people, and they’re using excess oil and gas profits to do it.

Meanwhile, our Congress is stalled on inaction and the Fed is raising interest rates to fight a fire that it’s not just here in the United States. That fire is worldwide. Inflation and supply chain disruptions are global. Raising interest rates only hits Americans at home and let’s be very clear, that will burn average working people -- the same people who are struggling to make rent right now.

The smartest way to fight inflation, and not hurt working people in the process, is a windfall profits tax, price controls, and antitrust enforcement to reduce the monopolistic pricing power of corporations. Congress can start putting out this inflation fire by passing a windfall profits tax and showing the American people they can still deliver. Please sign on now.

Thank you for encouraging Congress to act,

Robert Reich
Inequality Media Civic Action