The mistakes of the US Federal Reserve may trigger a new wave of inflation

The mistakes of the US Federal Reserve (Fed), which seems to be acting as an “extension” of the fiscal policy of the Democrats and the Joe Biden administration, will lead to an even greater erosion of the purchasing power of citizens through a spike in inflation.

1. The Bernanke-led Fed began quantitative easing just three months before the 2012 presidential election. At the time, the economy was growing, unemployment was falling and there were no signs of systemic stress in the financial system. So this was a clear intervention to help re-elect the Obama administration in 2012.

2. The Fed kept interest rates at zero for seven of President Obama’s eight years in office. Once he finally got around to raising interest rates, he embarked on one of the weakest monetary tightening programs in history, raising them only once in 2015 and once in 2016.

3. Donald Trump won the 2016 presidential election in a major upset for the political establishment. At that point, the Fed suddenly began raising interest rates three to four times a year while simultaneously draining $500 billion in liquidity from the financial system.

4. Today, the Fed is actively supporting the stock market through multiple credit facilities designed to provide liquidity to help the Biden administration in its re-election bid. The Fed is also promising to cut interest rates despite the fact that inflation has not fallen to its 2% target.

This image has an empty alt attribute; its file name is image-3.png   The Fed is also letting the housing market “reinflate.” The reason; You guessed it, real estate is the largest owned asset class in the US, and rising home prices during an election year are likely to sway voters. The S&P CoreLogic Case-Shiller National Home Price Index rose 6% in January – from +5.6% in December 2023. This represents the seventh consecutive month of annual price increases. It’s also the biggest increase since November 2022. By the way, inflation was around 6% at that time! This image has an empty alt attribute; its file name is image-4.png   So we have both real estate and stocks rising again, courtesy of the Fed playing political games. In the short term, this is fantastic for Americans, who will see their wealth increase. The bad news is that there is no such thing as a free lunch. And the Fed’s policies are unleashing a second wave of inflation.

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