Voters start to blame President BidenJoe BidenObama: Ensuring Democracy “Keeps Running Efficiently” Keeps Me From “Sleeping At Night” New Jersey landlords banned from questioning potential tenants about criminal records Night Defense: The Pentagon withdraws Middle East air defense assets | Democrats introduce resolution apologizing to LGBT community for discrimination | White House denies suspending military aid to Ukraine MORE for soaring prices on everything from diapers to chicken. While the president’s grandiose US $ 1.9 trillion bailout has thrown an excessive stimulus on an already warming economy, that’s not the only reason the cost of living is rising.
No, we also have to blame the Federal Reserve, which continues to flood the economy with cheap money. The Fed is late, and it knows it. Hence the recent small steps they have taken to curb the flow of money through the economy, which has helped push core inflation to a nearly 30-year high. Fed officials now forecast interest rates to climb to 0.6% by the end of 2023; When they last met in March, they didn’t expect any rate changes until at least 2024.
Fed Chairman Jerome Powell also announced after their recent policy meeting that at some point there would be a discussion about pulling out of his $ 120 billion monthly bond purchases, possibly .
Powell actually said, “You can think of this meeting we had as ‘talking about talking about fraying’. And people thought Alan Greenspan was opaque.
Inflation has been above expectations for several months and hiring has slowed down. The high priests in charge argue with the cohesion of a Gregorian chant that the price spike is “transient”, caused by supply bottlenecks and other one-off effects. And they continue to wait for unemployment to drop to pre-COVID levels.
But they don’t really know. We have never seen the government step in to resuscitate an economy that the same government just shut down. Never in peacetime have seen such huge sums of money spent by Congress, nor such huge purchases of bonds by the Federal Reserve. We are truly in uncharted waters.
Nonetheless, Powell and his merry band continue to sing the chorus “nothing to do here”, relying on falling lumber prices to justify their nonchalance.
For the record, lumber prices are down sharply from their recent highs, but remain about three times higher than the average level of the past 10 years.
It is entirely possible, as Fed economists scramble to explain the spike in prices, that they were wrong. Why? It seems our financial scientists have missed these important signals:
- Consumer net worth soared $ 26 trillion in the 12 months ending March 31 of this year, despite the devastation caused by COVID-19. Ed Hyman, a leading Wall Street economist, highlights the accumulation of wealth for many months, highlighting not only the total gains from rising stock and house prices, but the positive impact as well. that these gains have historically had on the economy. The relationship is pretty clear; increasing consumer net worth drives spending, with a lag of about six months. In its pessimistic growth projections resulting from closures linked to the pandemic, the Fed seems to have ignored this very positive indicator.
- The Fed also seems to have sniffed at it by forecasting the negative impact that additional federal unemployment benefits could have on the labor pool. A study by economist Steve Moore and his colleagues on the Right-wing Committee to Unleash Prosperity clearly shows that in 19 states, families with two unemployed parents and two children can “earn” up to $ 100,000 a year in various government benefits, including additional unemployment. payments, while staying at home. Why would they go back to work?
- Due to excessive government largesse, companies have to pay for workers; in what could become a vicious cycle, they pass these costs on to consumers.
- Businesses panicked last year as shutdowns unfolded across the country and around the world. CEOs had no idea how long the shutdowns lasted or how their customers would react. They did what they needed to survive; in particular, they stopped ordering new goods. Inventories have fallen to near record highs relative to sales, roughly ensuring that any pick-up in demand will lead to a commodity rush and bottlenecks as we are seeing now.
In sum, there were many warning signs that a recovery, spurred by stimulus spending, very low interest rates and giant bond purchases, was likely to gain momentum and lead to upheavals. Why did so few pay attention to it?
Politics undoubtedly played a role. Democrats and their media allies scoffed at the economy in the last six months of 2020, hoping the COVID-induced slowdown would slow President TrumpDonald Trump White House denies suspension of military aid to Ukraine Poll: 30% of GOP voters believe Trump will ‘likely’ be reinstated this year Black secret service agent tells Trump he’s offensive to organize a rally in Tulsa on June 17: PLUS reportthe re-election prospects of.
What’s more, Jay Powell has aggressively lobbied for Congress to pass stimulus aid, repeatedly arguing that his lenient monetary policy alone could not turn around the faltering economy. As lawmakers stepped forward, he could hardly resign.
And the newly empowered Democrats couldn’t pass up a good crisis.
Many of us have warned that December’s $ 900 billion stimulus package is too generous, noting that the economy is already recovering quickly and that the $ 1.9 billion US bailout is downright dangerous. But that was the minority view, drowned out by exuberant Democrats eager to spend.
Today, sounding the alarm bells about inflation is also a minority opinion. But a recent Harvard / CAPS Harris poll shows that 88% of the country is “somewhat” or “very” concerned about inflation. What’s more, only 18% of those polled (in a very pro-Biden poll) are “very confident” that the Biden administration will be able to “keep inflation at bay” – the same number who think the Fed will. able to do so.
When asked what the causes of inflation were, these surveys cited “massive government spending”, “large sums injected into the economy by the Fed” and “runaway government deficits”.
Looks like the voters may be right. Democrats and Joe Biden should be wary. Inflation could be the campaign’s big deal in 2022, and today they’re on the wrong side. Just like Jay Powell.
Liz Peek is a former partner of Wertheim & Company, a major Wall Street company. Follow her on Twitter @lizpeek