Stop squeezing Main Street: Washington spent the money, but the Fed is making small businesses pay the tab

Some prices have stabilized. Others have fallen. America has not made enough progress against inflation, but it has made progress. Before raising interest rates again, the Federal Reserve should explain whether additional restraint would build on those gains or make it harder for small businesses to invest, hire, and help working families get ahead. Congress and the administration should also account for what they can do to address the pressures that remain.August’s consumer price report shows why that distinction matters. Grocery prices held steady from July. Motor vehicle insurance fell 0.8% after declining the previous month. Electricity fell 0.2%, and fruits and vegetables declined for a third consecutive month. These improvements count in household budgets and should count in policy decisions.Other pressures remain. Overall consumer prices rose 0.4% in August, with gasoline accounting for more than one-third of the increase. That uneven picture calls for examining what is driving prices before deciding how much additional restraint the economy needs. The personal consumption expenditures report provides another reason for patience. Headline PCE inflation measured 3.4% in August, unchanged from July but down from 3.8% in May. Core PCE, excluding food and energy, fell from 3.2% in May to 3% in June and remained there through August. Progress has been followed by stabilization.The Fed’s 2% objective for overall PCE remains unmet. Inflation could stall above target, and that danger deserves attention. But data speak in trends. Five years above target establish the need to get policy right. They do not establish that another rate increase is the right next step.Chairman Kevin Warsh has identified who bears the consequences of getting it wrong. At Jackson Hole, he warned that people without financial assets are especially exposed when the Fed misjudges inflation or the economy. They face higher prices or less secure jobs. His warning captures what is at stake: families need purchasing power and the opportunity to earn a living.Small-business owners connect those goals through everyday decisions. Consider a contractor who needs another truck and equipment before adding a crew. The additional work must cover financing and payroll. Higher borrowing costs can change the answer from hiring now to waiting another year. For the worker hoping to join that crew, the difference is a paycheck.Main Street is still looking ahead. The National Federation of Independent Business’s August survey found that a seasonally adjusted net 17% of owners planned new jobs, down 3 percentage points from July. Twenty-four percent planned capital expenditures, down 1 point and below the historical average. These figures do not prove interest rates caused the decline. They identify commitments that higher financing costs could put at risk.Resilience should not be confused with invulnerability. A business can survive difficult conditions while postponing the investment that would allow it to grow. That distinction matters when investment can expand supply, improve efficiency, and support stronger wages.Timing complicates the challenge. New technology requires electricity, equipment, and workers before delivering additional output. That early demand can raise costs. Higher rates can restrain the spending, but they can also delay the productive benefits. The response should therefore extend beyond monetary policy.Congress and the administration must continue scrutinizing poorly targeted subsidies, duplicative programs, and new borrowing commitments. Where deficit-financed spending adds demand, credible fiscal restraint can share the work of containing inflation. Faster energy permitting and stronger employer-connected training can help expand supply. Elected officials have tools that interest rates cannot replace.THE FED ISN’T FIGHTING INFLATION. IT’S BANKROLLING WALL STREETThe Fed cannot rely on fiscal promises or ignore renewed inflation pressure. For now, holding steady would allow it to assess whether progress continues and how existing policy affects investment and hiring. Broader price pressures or deteriorating inflation expectations could warrant a different decision. Accountability means explaining that standard and the costs of acting.Working families need their paychecks to buy more and their opportunities to grow. Small businesses help deliver both, and their ability to invest and hire belongs at the center of this decision. The Fed should hold steady while evaluating the progress already underway, and elected officials should put fiscal discipline and supply reforms to work. Accountability means choosing the response that best serves the people who bear its costs. After five years of trying to catch up, the public deserves a chance to get ahead.Dan Varroney is an economic strategist, founder and CEO of Potomac Core, and author of Rethinking Economic Growth.