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U.S. Inflation Rate Rises to 7 %;Federal Reserve Will Be Compelled To Raise Interest Rates

January 12th, 2022 Comments off

The U.SĀ  Labor Department released its CPI data for December 2021. It shows that, compared with the CPI for December 2020, the past year has seen an annual inflation rate of 7 %. Compared with the prior month, the CPI advanced a full half of a percent.

The official inflationĀ  numbers make it clear that the Federal Reserve’s often repeated claim that inflation was “transitory” was a myth. If anything, inflation in the United States is accelerating. Furthermore, many economists view the official CPI data as an undercount. Likely, true inflation in the U.S. has reached double digits.

The reasons for this wave of inflation , unprecedented in the U.S. economy since the 1970s, I have commented on before in previous blog pieces. The important question now is what will the Fed, as well as other leading central banks in major economies, do in response to a clearly sustained wave of major price inflation.

Recently, even the Fed has abandoned its moniker that inflation was a transitory phenomenon . The Federal Reserve is now openly mulling monetary tightening in 2022, with intimations of 4 interest rate increases during the course of the year. However, the Fed and other central banks have been so muddled in their policy responses to date, it is likely that the steps expected will be ineffective. Should inflation further accelerate, compelling a more severe monetary retraction, the whole edifice of major equities and real estate valuation expansion built on cheap money will collapse. This makes a severe recession , and even a depression, a more likely near-term economic outcome.

Sheldon Filger-blogger for GlobalEconomicCrisis.com