Raise interest rates now

The Federal Reserve is making a mistake with its policies on interest rates. Last week, the Fed had an opportunity to stomp out inflation and shore up the dollar in one swift move — a simple interest-rate hike. By deciding instead to keep rates at current levels, the Fed is compounding the problem and leaving Americans vulnerable to worrisome levels of inflation.

The Fed has an important job: to make sure inflation stays at manageable levels. While it cited core inflation levels of 1.9 percent in its latest policy statement as evidence there is little inflationary risk in the near term, that doesn't paint the full picture.

The core inflation rates cited do not include food and fuel, both of which are at or approaching all-time highs. High commodity prices for wheat, cotton, copper and various base metals are only now beginning to work their way into the prices of numerous mass-market retail items — implying that the full magnitude of inflation has not yet begun.

Major retailers have begun passing on some of the input costs to consumers by raising prices as they try to guard margins, evidenced in recent statements from giants like Wal-Mart, J.C. Penney and the Gap. Bill Simon, CEO of Wal-Mart, stated, "No retailer is going to be able to wish this new cost reality away."

In stark contrast to core inflation numbers touted by the Federal Reserve, actual inflation in America was 8 percent over the first four months of 2011, according to an MIT research team's "Billion Prices Project" (BPP), which tracks costs of thousands of consumables.

Many have even begun noticing phantom inflation, where prices don't change but the quantity of products does. For example, a loaf of bread may have two fewer slices, or a box of cereal may be slightly less full.

Inflation is also being "fueled" by loose Federal Reserve monetary policies, where massive debt burdens and entitlement obligations are forcing the government to either default on liabilities or print new money. By creating new dollars "out of thin air" they are diluting the value of all U.S. currency. This dropping buying power of the dollar means it takes more to purchase items.

The only way to combat inflation is to raise interest rates. The minor shock to the economy this would cause will be far less troublesome than the impact of inflation gaining any further momentum.

The Fed needs to cease creating fresh money and instead pay for its debts, obligations and entitlements through aggressive fiscal responsibility measures. Only through these measures can we combat this inevitable crisis.