Stefan Gleason Blog | What The Fed DOESN’T Want You To Know About Inflation | Talkmarkets - Page 2
President at Money Metals Exchange
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Gleason is president of Money Metals Exchange, a national precious metals investment company and news service with over 450,000 readers, 35,000 paid customers, and $120 million in annual sales. He launched the company while president of a national newsletter publishing ... more

What The Fed DOESN’T Want You To Know About Inflation

Date: Thursday, May 6, 2021 11:05 PM EDT


The problem with the narrative the Fed is peddling on inflation is that U.S. fiscal and monetary policy are still going full blast with “emergency” spending and stimulus. There is no let-up in sight.


The Treasury Department recently reported it expects to borrow $463 billion in the current quarter – spiking the federal deficit to an astounding $2.3 trillion for the full budget year.


Treasury officials acknowledged the Biden administration’s borrowing binge represents hundreds of billions of dollars more in red ink than they previously estimated in February.


The extra borrowing is necessitated by President Joe Biden’s $1.9 trillion COVID relief bill, which authorized $1,400 stimulus checks, expanded emergency unemployment benefits, and various other handouts.


Generous unemployment payments are having an unintended consequence. Millions of Americans are choosing to stay home and collect benefits rather than work. That is contributing to a labor shortage, one that is especially pronounced in the restaurant and retail industries.


Thanks to competition from all the government handouts, businesses are having to jack up wages and even dangle big signing bonuses to attract workers. Those that haven’t may soon be forced to if as state and federal minimum wage hikes go into effect.


A 1970s style wage-price spiral may not be far off.


Wage-driven inflation hasn’t really hit the U.S. economy in decades. It’s the missing piece in a potential secular trend of rising inflation.


While commodity price spikes are often transitory due to the volatile nature of futures markets, wage pressures once unleashed tend to feed into higher inflation on a more sustained basis. Once wage expectations rise, they tend not to come back down to the earlier level.


Unfortunately, wage earners along with investors and retirees stand to lose purchasing power on any U.S. dollars they receive. The Fed is bent on keeping interest rates depressed to ensure a negative real rate is imposed on savings – an insidious policy which saps away the wealth of savers while transferring some of it to debtors.

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