The Fed finally admits inflation is real — as if we couldn’t tell

Federal Reserve Chairman Jerome Powell has finally, albeit belatedly, seen the light and admits the country has a real inflation problem. He has, however, yet to own up to the Fed’s role in creating that problem and another one: an equity, housing and credit-market bubble.

So he certainly won’t admit how difficult the Fed’s ultra-easy monetary policy has made it to slay the inflation dragon without precipitating a nasty economic recession.

After spending much of last year telling us that inflation would prove to be but a transitory phenomenon, Powell last week had the Fed increase its lending rate from zero bound to between 0.25 and 0.5%. Never mind that consumer price inflation has been running at almost 8%, a 40-year high. Never mind too that Russia’s Ukrainian invasion and China’s new COVID-induced lockdown of some major cities is sure to propel inflation even higher.

In a speech this week to the National Business Association, Powell acknowledged that the series of small interest-rate increases that the Fed is planning might fall short of what is required to quell inflation. Instead, he now envisions that starting at its next meeting, in May, the Fed might need to begin raising interest rates in 50 basis-point increments.

Powell was, however, careful not to assume any responsibility for the Fed’s role in driving inflation higher even before Russia invaded Ukraine. He didn’t explain, for example, why the Fed maintained a zero-interest-rate policy throughout the last year — or why it allowed the money supply to balloon at a time the economy was recovering strongly and receiving the largest peacetime budget stimulus on record. Read more...

By Desmond Lachman | New York Post

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