Is President Biden about to set off the next wave of the decades-high inflation that is crippling the economy? Despite his vow to stay the course on inflation, the $1.7 trillion omnibus threatens to repeat the error of the 2021 $1.9 trillion stimulus, which triggered a spiral of price increases not seen in 40 years. The omnibus is even worse than Senator Schumer’s Inflation Reduction Act, which was calculated to boost prices.

To understand why, look to Larry Kudlow, who notes “there is growing evidence by economists” as to the root cause of “sky-rocketing inflation.” While the Federal Reserve deserves some blame, Mr. Kudlow points to an emerging awareness that the inflationary spiral “was caused by huge federal overspending.” Key culprit: “the Biden Covid relief bill of March 2021,” which sought to stimulate an already-recovering economy.  

The bill, Mr. Kudlow says, “essentially mandated that the Treasury Department just write checks to the bank accounts of many millions of Americans.” Mr. Kudlow’s appraisal is in line with an economic theory — relegated to the sidelines by leftists who favor government profligacy — that government debt, and deficits, fuel inflation in prices. Hoover Institution economist John Cochrane calls it “the fiscal theory of the price level.”

The theory — illuminated in a recent Wall Street Journal dispatch by Greg Ip — holds that “monetary and fiscal policy don’t just interact; they are, ultimately, inextricable.” As a result, Mr. Ip says, when “fiscal policy is irresponsible, even a responsible central bank can’t control inflation.” This theory sheds light on the reason why the Federal Reserve has been floundering in its recent anti-inflation drive despite its raising interest rates.

It’s been foundering even though the Fed has all but vowed to throw the economy into recession, and its chairman, Jerome Powell, gripes that “the labor market is incredibly strong.” What’s the problem with that, you might ask? Mr. Powell explains: “it’s going to be adding to inflation.” The Fed wants working Americans to accept slower wage growth and more unemployment while the Fed’s economists try to curb inflation.

They’ve been at it since March, raising interest rates to levels not seen in 14 years, throwing the housing market into turmoil, and what do they have to show for it? Inflation for November clocked in at just over 7 percent, still higher than it’s been since the early 1980’s, when President Reagan and Paul Volcker were taming the last wave of runway price increases. Could today’s anti-inflation drive be failing where theirs succeeded?

If so, look to the failure to address runaway federal deficits while the Fed is trying to cool down the economy via interest rates. Mr. Cochrane sees an economy “in the shadow of debt.” He notes the national debt was “about 25 percent of GDP in 1980,” when “Paul Volcker started raising rates to tame inflation.” Today, our Mount Everest of debt stands at “100 percent of GDP and rising quickly, with no end in sight.”

Mr. Cochrane doesn’t let the Fed off the hook in all of this. “They’re leading us in the dark,” he tells the Journal, “with a great pretense of knowing exactly what the map is in front of us.” In the pandemic, he says, the Treasury borrowed trillions — bought up by the Fed as “new reserves” — then started sending checks out to Americans. “Is it at all a surprise,” he asks, “that a year later inflation breaks out?” 

Mr. Cochrane, who has a book due out in January, reckons “for higher interest rates to reduce inflation,” they “must be accompanied by credible and persistent fiscal tightening.” The solons on Capitol Hill missed the memo. Their spending bill breaks the bank with millions, Daily Signal says, for “a group that promotes dirt-bike culture in Baltimore,” and “soy-enabled rural road reconstruction” in Iowa. It’s the road to the next inflation.