American Enterprise Institute - AEI aei.org 10 Jun, 2021 21:30 am

The Federal Reserve won’t admit it has an inflation problem

The Federal Reserve won’t admit it has an inflation problem

Nor is it only that core inflation, inflation excluding volatile food and energy prices, is now running at close to double the Fed’s 2 percent inflation target and is at its highest level since 1991.It has also done so by committing itself to acquiesce to inflation at a rate above its 2 percent inflation target for some time to make up for the many years in which inflation ran at levels below its inflation target.Surprisingly, in subscribing to its sanguine inflation view, the Fed chooses to turn a blind eye to the major underlying forces driving today’s inflationary process.That in turn makes it all too likely that today’s inflationary experience will prove to be anything but transitory.

In the Fed’s view, the Covid-related supply chain problems that we are now experiencing, especially in computer chips so vital to modern manufacturing production, will soon be resolved.The Fed also chooses to ignore the fact that its own policies remain highly expansionary and that, as a result of the Covid lockdowns, US consumers have excess savings amounting to around $ 2 trillion.

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