Although US stock indices closed higher yesterday, the corrective move continues. There is a great fear among investors about a rate hike by the US Federal Reserve. Inflation in the United States is at an all-time high and continues to increase. By the next FOMC meeting, consumer inflation could accelerate to 8%, the high of over 40 years. This is the price for undertaking stimulus measures over the past 2 years the US central bank has to pay, as well as it is the consequence of the coronavirus pandemic. Like the European Union, the United States adopted a loose monetary policy stance and injected huge amounts of cash into the economy, hoping for a rapid recovery. Generally speaking, the regulator's monetary policy is responsible for continuing inflation. Many experts believe that rate hikes will not be enough the solve the problem of soaring inflation. They say monetary stimulus is not the only reason for growing consumer prices. They say high energy prices, the imbalance between supply and demand, and global supply chain issues are among other headwinds. Therefore, raising interest rates may not solve the problem of galloping inflation.
ShadowStats founder John Williams suggests real inflation in the United States is at a15% rate and the economy is on the verge of collapse. According to official data, the reading is 7.5%. He believes the Federal Reserve's stance on inflation is fundamentally wrong since strong economic growth (which is indeed observed in the US, according to GDP data) cannot trigger a spike in consumer prices. "The one thing that is not causing inflation is robust economic growth. So, when they talk about raising interest rates to kill this robust economic growth that's triggering inflation, that's absurd. If the Fed foolishly raised rates as reflected in the payrolls as not being fully recovered, you are going to have a sharp downturn, a double-dip depression here. At the same time, you are still going to have inflation. You are going to end up with an inflationary depression or a hyperinflationary Great Depression," John Williams said. To be honest, it does not look absurd. As we know, the central bank has almost completely abandoned monetary stimulus, but it had no positive effect on inflation whatsoever. So, the question is, what rate hike is needed to return inflation to the 2% target? Indeed, the Federal Reserve will not be able to raise interest rates by 2% or 3% at once. In other words, it will take inflation several years to return to 2%. So, it will remain high all the while. In addition, it is unclear when oil and gas prices will stop rising and supply chain issues will be resolved.
