Stagflation Could be on the U.S. Economic Horizon
Federal Reserve Board chairman Jerome Powell made it clear there will be no change in monetary policy for the foreseeable future.
In a Wall Street Journal op-ed, Powell wrote that because there is still a long way to go in the U.S. economic recovery:
…at the Fed we will continue to provide the economy with the support that it needs for as long as it takes.
What does that mean? No interest rate hikes until the end of 2023 at the earliest – regardless of the inflation rate – and a continued, aggressive, monetizing of the federal debt:
…the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
Combined with the ongoing flood of federal money into the economy,, and the ingredients are in place for a return to inflation, or, much worse.
Former Clinton Treasury Secretary Larry Summers said “[t]hese are the least responsible fiscal macroeconomic policy we’ve have had for the last 40 years…”
Summer also said:
…there is a one-in-three chance that inflation will accelerate in the coming years and the U.S. could face stagflation. He also saw the same chance of no inflation because the Fed would hit the brakes hard and push the economy toward recession. The final possibility is that the Fed and Treasury will get rapid growth without inflation.
“But there are more risks at this moment that macroeconomic policy will cause grave risks than I can remember…”
Joe Biden is intent on reviving the era of even bigger, even more expensive government. What he may revive with it is an inflation threat that hasn’t been seen since the late 1970s coupled with stagnant employment.
In other words, the Jimmy Carter years. Back to the future, indeed.
Image Credit: By AgnosticPreachersKid (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons