Voted Democrat
HeeHuuck HeeeHee
this money is for a loaf of bread
HeeHuuuck HeeHuuck
| Submit your comments on this article |
| Economy |
| Inflation Outlook: Likely Worse Than Expected |
| 2021-03-18 |
| [AIER] Though money supply has been growing rapidly over the period since the Great Recession in 2008, not much of it has been put to productive use through credit extension to finance economic activity. Instead, the Federal Reserve Bank (Fed) has incentivized the banking system to hold excess reserves at the Fed. The Fed’s policy was to provide a safe yield — the so named IOER, or interest on excess reserves — if reserves were parked in an account at the Fed. Required reserves. Bank reserves zoomed to $2.8 trillion from $45 billion in 2010. Even required reserves, though a small portion of total reserves, increased from $43 billion to $208 billion by early 2020. Following the declaration of a Covid-19 pandemic, reserve requirements were dropped to zero on March 26, 2020. So, up until March last year, there has been no need by banks to take market risk when the Fed provided a safe return. That largely worked to sterilize the growth in money supply so that little new credit was extended to finance economic activity. That is about to change. Interest rates are rising, suggesting greater opportunity costs (forgone returns) for not putting the money to work throughout the economy. It isn’t just banks that will face greater incentives. As a consequence, nominal economic activity will be stimulated and consumer price inflation is likely to reach higher rates. The implication is for increased monetary velocity that will push up nominal GDP and with it likely push consumer prices to 3.5% or more in the next few years. Our forecast is a full percentage point higher than the forecast embedded in the TIPS five-year forward inflation rate. While the Fed believes it has the tools to control price inflation, it has indicated that they are determined not to let it get out of control. To combat accelerating price inflation it will likely put them in a bind as they are forced to raise short-term interest rates. That will likely lead to adverse consequences for the stock market and real economic growth. |
| Posted by:Besoeker |
| #5 Wouldn't inflation approximate (GDP + govt spending)/GDP? Or 'printed' money/GDP? Or something like that? |
| Posted by: Glenmore 2021-03-18 14:58 |
| #4 Are the current crop of Dems trying to beat Jimmy Carter's record for stagflation in the 1970s? That era had double digit inflation and unemployment. Thank goodness Reagan replaced Carter. We had an era of prosperity--lowered taxes, good employment, low inflation that lasted into the Clinton Administration. Clinton tried to take credit for the Reagan recovery and good economy. |
| Posted by: JohnQC 2021-03-18 09:57 |
| #3 ...and your point is? |
| Posted by: Procopius2k 2021-03-18 07:12 |
| #2 ^ another GameStop investor is born |
| Posted by: Spaiting Hupens1086 2021-03-18 05:53 |
| #1 Voted Democrat HeeHuuck HeeeHee this money is for a loaf of bread HeeHuuuck HeeHuuck |
| Posted by: Spilt Jerky5617 2021-03-18 05:50 |