The Fed Is about to Reduce Bond, and Inflation Is Estimated to Reach 5% Next Year Again -Part 9

The continuously rising inflation in the U.S. is affecting the Fed’s decision-making and is beginning to have a broader impact on the overall cost of living, wages and social welfare programs. Moreover, economists currently predict that inflation will keep rising.

On the 12th, the Federal Reserve Bank of New York issued a report stating that American consumers’ median expected inflation rate in the next year has reached 5.3%, achieving 11 consecutive months of growth and setting a record high. The chief international economist of ING said that rising housing costs, low inventories and increasing energy prices will keep inflation at a relatively high level for a longer period of time. He predicts that by the first quarter of 2022,the consumer inflation index will remain above 5%. He added that inflation may prompt the Fed to act “earlier and faster” to adjust monetary policy against inflation.

A few days ago, the former U.S. Treasury Secretary said that since the current inflation is far above 2%, the Fed’s target, and the central bank has not talked about raising interest rates for a year and a half without taking any measure at the same time, the inflation problem is likely to get out of control and difficult to solve.

He said that the fiscal stimulus plan implemented by the United States has brought a budget deficit of 15% of GDP for an economy with a GDP gap of 2% or 3%, so price increases are not so surprising. But when there are zero interest rates, a large-scale quantitative easing program, and a savings surplus of $2 trillion, inflation is magnified. A record labor shortage in the United States, housing inflation as high as 20%, oil and gasoline prices at their highest levels in eight years, and the government’s ongoing fiscal stimulus plan will all lead to high inflation at a cost. Under these circumstances, the Fed continues to carry out large-scale monetary expansion through the purchase of bonds, which is irrational and takes great risks.