Friday, September 18, 2020

Top CFR Economist Warns Inflation Could Return Faster Than Federal Reserve Thinks

 Top Council on Foreign Relations economist Benn Steil and his associate Benjamin Della Rocca write:

[S]ince June, as QE continued to balloon the Fed’s balance sheet, bank excess reserves have turned sharply downward. In consequence...the gap between the Fed’s balance sheet and bank excess reserves, which had closely tracked inflation throughout the post-crisis era, has hit new highs. If this trend persists, inflation should head upward in tandem...

When, then, can we expect inflation to hit the Fed’s Holy Grail of 2 percent? Well, we know that when our balance-sheet-to-reserves gap measure began rising in 2010 it took eight months for inflation to rise one percentage point from the time it subsequently bottomed out. If inflation should rebound at the same pace now, we are looking at 2 percent Core PCE inflation, the Fed’s preferred measure, in February 2021.

The Federal Reserve on the other hand doesn't see price inflation at 2 percent until 2023.

My thinking, as outlined in the EPJ Daily Alert, is in line with that of Steil and Della Rocca.

The Fed is thinking at a remarkably shallow level that reflects a poor understanding of how price inflation develops. They are just projecting the trends in growth of price inflation in recent past years into the future.

Steil and Della Rocca point out, as I do, that newly Fed created funds are currently getting pushed into the system. This is different from the money pump following the September 2008 panic. At that time, much of the Fed money pump ended up as excess reserves, not this time.

There is enormous upward pressure on prices right now that will continue into the foreseeable future.

Hug your gold coins.



  1. And keep your guns close, clean, and ready to go.
    I’ve been talking to bullet and gun manufacturers (smaller outfits) trying to get a pallet of ammunition sent up here, for different friends, and ammunition is worth its weight in gold right now, and about as hard to find. All of them pretty much had the same answer. They are selling it faster than we can make it. And inflation for ammo (the things people want) is skyrocketing.

  2. Stealth Inflation has been around a since the last recession and its steadily marching up for anyone that has to worry about the price of things.

    Close the swelling debt spigot and see what happens.