The Fed Demands Higher Inflation

For a while now, it’s been clear that the Fed wants higher inflation.

Now it’s finally starting to admit it. Here’s an excerpt from CNBC’s article this week titled “The Fed is expected to make a major commitment to ramping up inflation soon:”

“In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.

Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.”

In essence, the Fed is arguing that because inflation has been so low over the past decade or so, they can “make up” for those lost price increases going forward.

Their justification for higher inflation is shaky at best. Here’s how CNBC explains it.

“The Fed and other global central banks have been trying to gin up inflation for years under the reasoning that a low level of price appreciation is healthy for a growing economy.” 

So the “official” explanation is that higher inflation is good for the economy. Seems strange, doesn’t it? Higher prices are horrible for the average person. It’s an invisible tax that erodes savings and hampers financial performance.

But inflation does have one very specific “benefit” for the economy. Inflation will help wipe away the huge amounts of debt we’ve built up over the last few decades. It will help corporations, governments, and individuals who borrowed too much deal with their debt problems. 

I think that’s the real reason they want more inflation.

Will They Succeed?

The big question is this: can the Fed achieve the level of inflation it desires? Many investors are skeptical that they can. Just one year ago the cover story for Bloomberg Businessweek was “Is Inflation Dead?”

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