The question is when and how will the Fed start tapering stimulus. “Most likely we’ll hear something on tapering at the Jackson Hole summit meeting in August and it will commence likely in the fall. It will either be in the form of a paper presented about it or an announcement. We’ve already heard a number of the regional bank presidents talk about the need to start tapering because they’re getting spooked about inflation and the tightness in the labor market,” Jones added.
Political Football
Republicans used the jump in the CPI to pounce on what they’ve coined “Bidenflation.” “Economic experts are catching up with what cash-strapped families have known for months: Bidenflation isn’t as transitory as the White House claims,” said Rep. Kevin Brady, a Texas Republican and a ranking member of the House Ways & Means Committee.
“In fact, the inflation in June skyrocketed past the Congressional Budget Office’s expectations by nearly 3 percentage points,” Brady said.
What is certain is that inflation will be a political football for as long as it lingers.
Larry Summers, the former U.S. Treasury secretary (and a Democrat), on Wednesday tweeted, “I think most factors point to more cause for concern now than in 1966 when inflation accelerated 3-4 pts in 4 years. Then, the deficit was in range of 3%. Now the deficit is in the range of 15%.
“Then, there was no saving overhang, no housing price boom and no major asset price inflation. Now, all three are present to an almost unprecedented degree. Then, because of the labor force and productivity growth, supply potential was growing at 3.5%. Now it’s less than 2%,” Summers said.
“Then the argument was that measured inflation would not accelerate too much from 2%. Now it is that inflation will substantially decelerate from 5%,” he added.
Some longtime pundits believe the Federal Reserve may be fueling inflation. Steve Forbes, the chairman and editor-in-chief of Forbes Media, told Fox Business on Wednesday that the Fed’s policies have led to long-lasting inflation and more government spending will only make it worse.
“Inflation’s here for a while,” Forbes said. “We're getting the whirlwind of what was done last year and the year before. But even before Covid, the Fed was printing too much money. They went on a binge last year, perhaps for understandable reasons, but they overdid it.”