[Skybird]

Like in Europe, son in the US: inflation galopping. Just that the plundering morons at the ECB sleepwalk even longer than those at the FED.

Neue Zürcher Zeitung:


Inflation is slipping away from the USA. Now interest rates must rise faster

America's central bank has screwed up. It took up the fight against inflation too late and far too hesitantly. Now the pace must be stepped up, even at the price of a recession.

Jerome Powell is becoming increasingly uncomfortable. The head of the U.S. Federal Reserve has to watch inflation in the U.S. climb ever higher, to 8.5 percent by now. Powell has therefore indicated that he will increase the pace of interest rate hikes. Instead of the usual triple steps of 0.25 percentage points, the key interest rate is likely to be raised by 0.5 percentage points at the next monetary policy meeting. Such a step is "on the table," Powell said on Thursday.

On the stock markets, where one has become accustomed to the cheap money, the announcement comes admittedly badly. But more decisiveness in the fight against inflation is called for. In the U.S., a sense of loss of control is spreading. Prices, unimpressed by the central bank's actions so far, seem to be rising unchecked. Public discontent is growing. A survey shows that almost one in five Americans considers inflation to be the country's most pressing problem.

It need not - and should not - have come to this. To partially relieve the central bank, it must be admitted that higher interest rates cannot solve supply chain problems; nor can monetary policy solve supply shortages of energy goods or food. But the monetary authorities are by no means innocent of the price surge. They have effective instruments at their disposal to curb demand - provided they are willing to use them.

Powell and his team lacked this willingness. Their policy has not smoothed out the economic cycle, but intensified it. The Biden administration's billion-dollar stimulus policy was flanked by a similarly generous monetary policy. The result of this juxtaposition was a massive overheating of the economy. For example, an analysis by the Federal Reserve Bank of St. Louis shows that monetary policy in the fourth quarter of 2021, when the threat of inflation was already abundantly clear, was more stimulative than at any time in nearly 50 years.

In other words: At a time when the government was letting a veritable rain of money rain down on the U.S., consumer demand was rising sharply thanks to easing Corona measures, companies were desperate for workers and prices and wages were rising sharply, the central bank was giving the economy an additional boost. The consequences of this procyclical policy can be seen today: a rapid loss of purchasing power of money and a tarnished credibility of the monetary guardians.

Smart monetary policy takes small steps and avoids shock-like jumps. But this requires looking ahead and addressing problems as they begin to emerge. In the recent past, however, America's central bank has never been able to bring itself to take such preventive measures. This is now taking its toll. Because the bank can no longer afford the ideal of a gradual approach, but must accelerate the pace; this is made clear by Powell's speech.

America's central bank is in a critical phase. It must prevent inflation from taking on a life of its own, penetrating all the cracks in the economy and causing the wage-price spiral to get out of control. The longer inflation remains at a high level, the greater the danger of such a decoupling. Interest rates must therefore rise rapidly to a level that no longer has a stimulating effect. If this were to trigger a recession, it would be a price we would have to be prepared to pay. After all, there are no alternatives to controlling inflation.
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Reader's comment by T. W.

Historically, inflation today would be at the level of 40 years ago. It is more correct to say that the interest rate on credit balances was always higher than inflation back then, too. Today, with 8% inflation, the saver has a penalty interest rate of -0.5%. His taxed savings are now reduced annually by almost 10%. This is new and rather reminiscent of Weimar conditions with their social explosives and disincentives. This development was and still is crystal clear predictable. Just because self-proclaimed modern economists and money theorists declared inflation to be a relic of bygone eras only two years ago, unfortunately nothing changes in mathematics, physics and human sociology. In the end, we will always get the receipt for our life's lies. Because the truth does not simply go away, if we lie to ourselves smilingly the world. The sudden onset of inflation should be a wake-up call to re-examine many other principles of life and society that have been turned upside down in the recent past, before our livelihood completely blows up in our face in the medium term.

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