The latest numbers show Americans are getting no relief from out-of-control inflation, with the biggest year-over-year jump in the Consumer Price Index in 40 years.
And a key Federal Reserve insider is warning that this is only the beginning of a wave of “pain” that will be felt by ordinary Americans.
“If you’re a wage earner you’re going to fall behind,” Thomas Hoenig, former president of the Kansas City Federal Reserve Bank, told Barron’s Live.
Hoenig spoke days before the announcement that January’s price index jumped 7.5 percent year over year, and up from 7 percent in December, making 2021 the worst year for inflation since 1982.
But Hoenig said there’s more pain ahead due to inflation as well as some factors that haven’t gotten as much attention.
While the Biden administration has blamed the pandemic for inflation and other economic problems, Hoenig pointed to a policy that began during the Obama administration called “quantitative easing.”
That, explained MarketWatch, is when the Fed buys up Treasury and mortgage bonds to push cash into the market while slashing interest rates to stimulate the economy.
Hoenig — who repeatedly voted against the policy – said the bill for those decisions is now coming due.
“It’s going to be a very difficult couple of years for the U.S. economy and the Federal Reserve,” he warned.
The agency, he said, will likely raise interest rates to fight inflation – but that, in turn, will slow the economy.
“They’ll worry about recession,” he said causing the fed to ease interest rates again “even while inflation remains four to five percent.”
Those rate cuts, he predicted, would short-circuit the attempts to control inflation, and that could backfire, having an impact on the cost of everyday items and also potentially putting the chill on the stock market.
Hoenig said that doesn’t necessarily mean the market will collapse any more than it already has in recent months, but it could mean another form of pain for Americans who rely on their investments for savings and retirement income.
“It will grow more slowly,” he said. “Getting used to modest or no increases in asset values will be difficult.”
Meanwhile, Americans continue to shell out more just to get by, with the new inflation numbers showing prices continue to jump in both food and energy… or the two core areas where household budgets are difficult to cut.
People have to eat.
And they have to heat their homes.
That means they will have to pay, and Hoenig said wage-earners will notice the impact of those price jumps.
“People are if nothing else sensitive to high inflation,” he said. “They know what it is doing to them. They know they are losing ground across the board. When you go to the grocery store, you see the inflation and that is what people are paying attention to.”
The White House says it expects prices to come down soon.
“We, again, rely on what [the Fed’s] projections are that inflation will come down, that it will moderate, and we are also continuing to take steps to continue to grow the economy and continue to address the needs that the American people have in the economy,” White House press secretary Jen Psaki told reporters this week.
That’s what the White House said last year, too – as far back as spring 2021. Since then inflation has moderated… but it still remains high, with month-over-month inflation clocking in at an annual rate of about 6 percent for the least three months.
And as the new comments from Hoenig indicate, ordinary wage-earners can expect it to get a whole lot worse before it gets any better.
— Walter W. Murray is a reporter for The Horn News. He is an outspoken conservative and a survival expert.