Inflation remains one of the biggest threats to the US economy. Analysts at Saxo Bank believe that consumer prices may rise by 15% in 2022, which will overshadow the last major inflationary environment of the 1970s.
The Danish bank's inflation forecast is part of its annual outrageous forecasts, and although the forecast seems extreme, it is not as far-fetched as one might expect.
Last week, the US consumer price index rose by 6.8% a year in November; however, many economists note that inflation is much higher than official government reports.
Statistics from the shadow government of John Williams show that inflation is already 15% based on the methodology that was used before 1980. And when calculating inflation according to the 1990 methodology, it exceeds 10%.
Christopher Dembik, head of macro analysis at Saxo Bank, said his forecast is based on wage inflation getting out of control, a similar scenario that occurred in the 1970s.
Dembik noted that inflation peaked at 11.5% in 1975, but a recession was required, and in the early 1980s, the Fed raised interest rates to 20% in order to bring prices back under control.
According to him, Fed Chairman Jerome Powell and the Federal Reserve System as a whole are repeating the same mistake again. The economy, and especially the labor market, is severely limited in supply, which is a mockery of the traditional Fed models. Powell estimates that millions of Americans will return to work and fill some of the 10.4 million open vacancies. But this is a clear mistake.
Ole Hansen, head of the commodity strategy at Saxo Bank, said that the probability that the Fed will lose control of inflation is high, and the US Central Bank will remain far behind the inflation curve.
