The Biden Administration now expects consumer prices to rise 4.8% in the fourth quarter of 2021. This follows July's 5.4% increase in consumer prices in advance of the Fed’s Jackson Hole conference. Our analysis suggests that the inflation spike is due to fear and greed-based labor and supply chain disruptions resulting from the unprecedented and ongoing COVID crisis. Thus, price increases are to be expected. The current pandemic is not fully comparable to earlier ones, given technology's role in facilitating the highly integrated nature of the global economy and the decline in ethical standards of business behavior, as evidenced by the prior occupant of the White House. The Fed is right to focus on inequality, now the greater risk, than it is on protecting the financial standing of a small group of mainly non-minority individuals and institutions.
Given the above, we suggest the central bank modify monetary policy to resist price increase tactics by major industrial and financial institutions. This implies not increasing inflation expectations and fears by tapering stimulus. Such a move will foster increased social volatility by revealing the Fed’s penchant for assisting large holders of capital over the bulk of the population. We note that arguments concerning the elevated impact of inflation on low-income households are no longer valid, if they ever were. We understand the central bank’s unfamiliarity with these arguments and data, given the lack of diversity on the Board.
The central bank's skill in recognizing the true nature of the risks present remains to be seen. Any policy missteps will support the adoption of alternative payment mechanisms, like bitcoin.