Security Trade Ideas (STI) April 2021
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Inflation in 2021:
“There is no guarantee that low inflation will last.”
“We think inflation is going to be muted because unemployment will still be high,” said Michael Feroli, chief U.S. economist at JP Morgan Chase Co. “There will still be slack in the labor market, which would keep some pressure on wages.”
Even the arch-monetarist Milton Friedman, who inspired Thatcher, admitted late in his life that the short-term link between the money supply and inflation had broken down. But the covid-19 pandemic has shown the value of preparing for rare but devastating events. The return of inflation should be no exception. “ Source: The Economist
Federal Open Market Committee (FOMC) adopted inflation target of 2% in January of 2012. In an article Mr. James Bullard of Federal Reserve Bank of St. Louis discusses why inflation could rise. His reasoning are: Money Supply, Fiscal Deficit (debt to Gross Domestic Product) level, and that the higher level of economic growth will put pressure on prices (The Philips Curve Theory). FOMC has used interest rates since 2012 to quell inflation but now they will allow it to run higher.
“CBO projects a federal budget deficit of $2.3 trillion in 2021, nearly $900 billion less than the shortfall recorded in 2020. At 10.3 percent of gross domestic product (GDP), the deficit in 2021 would be the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year.”
Clearly, Mr. Powell isn’t concerned about inflation. They haven’t been able to reach the 2% goal since 2012. I can humbly say the food on my table, the gas in my car and that house my child wants to buy has gone up in price. If that isn’t inflation, then what is? Congratulations to FOMC who will finally be meeting their 2% inflation target if not this year by next for sure – I am guessing – of course! This content is restricted to site members. If you are an existing user, please log in. New users may register below.