In May, the CPI and PCE both posted their biggest increases since 2008, the PPI posted its fastest year-on-year growth since records began in 2010, and the core CPI recorded its fastest increase since 1992. But the Fed keeps feeding the market the “inflation transitory narrative”, playing down the risk of inflation and assuming that inflationary pressures will ease when the base effect subsides. To this, each major financial institutions have given refute.
Bank of America (BofA) has warned that inflation in the United States will remain stable at 2-4 percent over the next two to four years, above its previous warning line of 2 percent. Bank of America said the U.S. inflation is far from temporary, as the Federal Reserve claims. On the contrary, the U.S. is likely to face high inflation pressures for the next four years, and may even become a normal situation.
Part of the reason for the Bank of America’s dire warning is that the US has a massive money oversupply, with the Fed’s balance sheet now topping $8 trillion, up from $4 trillion in March 2020. BofA also emphasises that the US’s recently agreed $1.2tn infrastructure plan will also contribute to a sustained surge in inflation.
Why? With a budget already at $2.06 trillion this fiscal year, the U.S. simply doesn’t have the money to finance the plan. It has to borrow money. At the same time, total U.S. debt has soared to $28.4 trillion, and the U.S. Treasury’s debt ceiling is set to take effect on July 31, by which time the agency can’t borrow more if it doesn’t pay off some of its obligations. In late June, Ms Yellen implored Congress to give it more time before the US defaulted on its debts in August.
On the other hand, when the US prints money, everyone prints it too, which leads to global excess money and higher inflation. According to Bank of America, global fiscal stimulus packages have totalled $30.5tn over the past 15 months, equivalent to the combined GDP of China and the European Union.
In fact, it is not just the Bank of America that has been dismissive of the Fed’s so-called “inflation temporary theory”. Many economists and financial institutions have also raised objections.
Former Treasury Secretary Larry Summers, for example, predicts that when inflation hits 5% by the end of the year, he will be surprised if the Fed leaves it alone.
Jeremy Siegel, a prominent Wharton economics professor, has even issued a startling warning that if the Fed continues to do nothing and the printing presses continue to churn out new dollars, U.S. inflation could top 20% in the next two to three years.
Moreover, the spillover effects of US inflation cannot be ignored. Recently, European Central Bank President Christine Lagarde said that higher inflation in the United States will indeed lead to higher import prices and stronger exports, and people in the euro zone will also be affected, and inflation expectations may surge.
If the US continues to ease the current CPI, it will only be for the sake of sustained recovery and growth of the US economy, at the expense of the lives of the American people and the lives of people around the world. America’s pursuit of economic growth will lead to higher inflation around the world and a surge in global commodity prices, such as the copper and plastic used in our power cord and cables, which will increase the cost of production and operation for businesses.
Post time: Jun-29-2021