Washington Has Two Plans to Fight Inflation (Both Are Terrible)

via Peter Reagan

Earlier this week, Brandon Smith asked whether Americans would actually get the lower prices they voted for.

Today, I’d like to ask the next question: What would it actually take for Washington to deliver meaningful relief from inflation?

It’s a deceptively simple question.

President Trump has emphasized economic growth, deregulation and increasing domestic energy production. Democrats, who will control both houses of Congress in January, want to expand renewable energy and restore incentives for clean energy development.

Both approaches promise to make energy more affordable. And since energy costs affect everything from manufacturing to transportation to your monthly electric bill, lowering those costs could help ease inflation.

But here’s what troubles me: Even if either party gets exactly what it wants, there’s no guarantee that Americans will see meaningful relief anytime soon.

And the latest inflation numbers suggest we don’t have the luxury of waiting indefinitely.

Inflation is proving surprisingly stubborn

According to the Bureau of Labor Statistics, consumer prices increased 0.4% in October, following a 0.6% increase in September.

Now, that might not sound particularly alarming. (October’s increase was smaller than September’s, after all.)

But there’s more to the story…

Economists had expected prices to increase just 0.3%. Instead, the October report was 30% higher. We learned that inflation remained elevated across several important categories:

• Food +50bps
• Shelter +30bps (accounting for more than one-third of the overall monthly increase)
• Energy +70bps (on top of September’s massive 520bps surge)
• Core inflation, excluding food and energy, +30bps for the third consecutive month

Reuters reported annual inflation estimates of 3.9%-4.0% in October, up from September’s 3.7% year-over-year report. My own personal back-of-the-envelope calculation is 4.2% year-over-year. Unfortunately, the BLS didn’t publish an official October year-over-year comparison due to the 2025 government shutdown.

Here’s what I find most concerning: Inflation isn’t confined to a single troublesome category. It’s showing up in food, housing, medical care and other necessities. This is unsurprising, considering that higher diesel prices have been pushing up prices throughout the economy…

It’s hard enough for families whose income is trailing inflation. Harder still for retirees on a fixed income to stay ahead of the bills.

Everyone wants inflation to go back down. Let me remind you, though, even if Washington succeeds in reducing inflation, that doesn’t mean prices will come back down!

A lower inflation rate simply means prices are rising more slowly.

The higher prices we’ve already experienced generally remain. (This is one of the reasons for the separation of “headline” and “core” CPI – food and energy costs really do fluctuate up and down much more than other prices.)

That’s an important distinction.

So how is Washington planning to tackle this challenge?

Two different approaches to the same expensive problem

The Trump administration has prioritized expanding domestic production of oil, natural gas and coal, while reducing regulatory obstacles to energy development.

The argument is straightforward: Increasing America’s energy supply should help make energy more affordable, supporting economic growth and potentially easing some of the pressures that drive inflation.

There’s logic to that approach.

However, expanding production doesn’t guarantee lower prices. Energy prices are influenced by global supply and demand, transportation costs, infrastructure limitations and international events. Increasing domestic production can’t eliminate those influences.

Meanwhile, Democrats are emphasizing a different approach: expanding renewable energy, restoring clean-energy incentives and reducing the nation’s dependence on fossil fuels.

Democrats intend to pursue those priorities when they assume congressional leadership in January. They think more renewable electricity reduces household exposure to volatile fossil-fuel prices.

There’s a reasonable economic argument behind that approach, too. After all, once a solar installation is operating, it doesn’t need to keep paying fuel bills. It just makes electricity.

However, there’s an obvious complication. Solar and wind power are intermittent. Electricity demand continues even when the sun isn’t shining. (Yes, people turn the lights on when the sun goes down!) Or the wind isn’t blowing.

Reasonable people understand that eeping the lights on requires a combination of reliable power plants of different kinds – diversification. Along with energy storage, transmission infrastructure, maintenance teams and other resources.

Those things cost money.

Granted, traditional energy sources have their own infrastructure and operating costs, too. There no single electricity source that’s automatically cheapest under every circumstance.

It’s not about which technology delivers electricity at the lowest cost. It’s which combination can deliver reliable electricity to American homes and businesses at the lowest overall cost.

And regardless of which approach Washington favors, building new energy infrastructure takes time.

There’s another problem Washington can’t legislate away

This is where the numbers get especially interesting.

According to the Energy Information Administration’s November forecast, electricity generation is expected to increase substantially as demand from businesses and other consumers continues growing.

Renewable generation is also expected to expand, with utility-scale solar accounting for nearly 10% of U.S. electricity generation by 2027.

Yet despite that expanding supply, the EIA expects residential electricity prices to continue rising.

Its forecasts for the nationwide average residential electricity price are:

• 2025: 17.2 cents per kilowatt-hour
• 2026: 18.2 cents
• 2027: 18.7 cents

Think about that for a moment.

We’re increasing electricity production. We’re adding renewable generation. We’re pursuing new energy infrastructure. Yet the government’s own forecast still anticipates higher electricity prices.

Now, that doesn’t mean renewable energy is causing prices to rise. Nor does it mean additional domestic oil and natural gas production wouldn’t help.

It means the economics of energy are much more complicated than political promises make them sound.

Expanding demand, infrastructure costs and other pressures can offset some of the benefits of increasing supply.

And if the goal is to reduce inflation, those complications matter.

Because higher energy costs don’t stop at your electric bill. They can increase the expense of producing, transporting and selling the goods Americans depend on.

Some of those costs eventually reach consumers.

Can Washington agree on a solution?

There’s one more complication: Politics.

Come January, Democrats have a majority in both houses of Congress. President Trump will retain the presidency and his veto power.

That gives Democrats greater control over the legislative agenda, but not enough votes to override presidential vetoes without Republican support.

Major changes in federal energy policy could be difficult to implement.

Still, I wouldn’t go so far as to say Washington is incapable of accomplishing anything.

In fact, on November 9, the Senate voted 73-25 to advance bipartisan legislation intended to accelerate permitting for energy and infrastructure projects. Supporters included Democrats, Republicans and the Trump administration.

That’s encouraging, although advancing a bill isn’t the same as enacting it – much less producing lower electric bills. And it does demonstrate something every politician should remember: Voters hate higher prices. 

Meanwhile, the Federal Reserve can continue fighting inflation through monetary policy, regardless of which party controls Congress. But raising interest rates to tamp down inflation also makes borrowing more expensive – which slows economic growth.

Listen: Inflation isn’t an impossible problem to solve. But most of the available solutions have costs, compromises and delays.

And that’s why I’m reluctant to place too much faith in promises of “quick relief from higher prices,” no matter who’s making them.