For several weeks we have been noting that while the Feds and Wall Street keep blabbing that supply chain disruptions are fueling inflation, they have been ignoring the #1 inflation spiker: government and central banks flooding the economy with cheap money.
Now they are starting to admit the truth in trends.
President Joe Biden’s $1.9-trillion COVID relief plan passed by Congress earlier this year temporarily stoked inflation, according to a study released 18 October by the Federal Reserve Bank of San Francisco.
This year, the stimulus has added 0.3 percent points to the core consumer price index, which leaves out food and energy prices, Fed economists calculated.
Even though the stimulus money has largely been spent, it will add “a bit more” than 0.2 percentage points to next year’s core price index, they predicted.
During Donald Trump’s presidency, two bipartisan stimulus bills poured more than $3 trillion into the U.S. economy, including direct payments to individuals, grants and loans to businesses, and $300 a week in federal unemployment benefits.
Democrats added the $1.9-trillion “American Rescue Plan” after they took control of Congress early this year.
Economists were arguing about whether the late-stage plan, as well as its size, tossed gasoline on the inflation blaze.
To settle the issue, Fed economists looked at the ratio between job openings and unemployment.
Inflation tends to rise when there are fewer workers than available jobs. In that case, employers raise wages to attract workers, who spend the extra money, creating new demand that pushes up prices.
Government stimulus creates new demand, which can create jobs; but it also cushions jobless workers and employers by giving them extra money for no extra productivity, The New York Times pointed out.
The American Rescue Plan pushed the ratio near its 1968 high, but the Fed researchers assumed the labor market will loosen in coming months and that consumers will not be quick to demand higher wages because history has led them to believe that inflation will be temporary, the NYT reported.
TRENDPOST: While for over a year we have been forecasting that inflation would spike, as we kept reporting, the Fed Banksters kept either lying by saying it would be only temporary because they wanted equities and the economy to keep moving higher… or they were too stupid to see the inflation trends. As we noted in “Stimulus Poses No Inflation Danger, Powell Says” (30 Mar 2021), Jerome Powell, chair of the U.S. Federal Reserve, said in testimony before Congress that any inflationary effects of Biden’s $1.9-trillion American Rescue Plan would be small and short-lived.
Now a study from his own Fed says the stimulus plans will still be pushing inflation more than a year after the plan was enacted.