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The Real Risk is not Inflation: it's Civil War


We note the Federal Reserve now expects to "end its pandemic-era bond purchases in March (2022) and pave the way for three quarter-percentage-point interest rate hikes by the end of 2022.." 

While we agree the Fed is correct in observing that, for whites, "the economy no longer needs increasing amounts of policy support," specific sectors and demographics require ongoing support. The key skill of a central bank in the current environment is identifying these demographic sectors and providing targeted, non-inflationary support. There are a number of ways to do so, but, given the lack of relevant African American diversity on and at the Board, we do not expect the Fed to be familiar with these techniques. (We suggest they see our Maternal Mortality Reparation Facility for Black Women.)

We continue to believe that the recent inflation spike is due to fear and greed-based labor and supply chain disruptions resulting from the unprecedented and ongoing COVID crisis. This is confirmed by the fact that corporate profits are at record levels. In authentic inflation episodes, neither corporate profits nor private sector wealth are as elevated as they are now. These entities suffer along with the rest o the economy. We suggest the Fed make the case that price increases are to be expected. Further, to control inflation, the Fed needs to control corporate tendencies to raise prices. 

A 12% inflation rate would have been entirely reasonable, given the fact that the global economy has been shut down for 18 months. So far, we've only seen 6%.

We expect inflation to reach 4.2% in 2022 before falling to 3.0% in 2023 and 1.4% in 2024. Full adjusted unemployment will fall to 2.0% in 2022, as workers successfully find occupational opportunities that are more consistent with their ethical and environmental values and life goals. 

We expect the current pandemic to continue as COVID mutates and believe the Fed needs to focus more on inequality than on protecting the financial standing of a small group of mainly non-minority individuals and institutions. Further, any claims that Fed rate increases protect low income consumers will be seen as transparently false, in the same way that Fed-backed community development efforts have served to enrich a small group of non-minority individuals and institutions, as confirmed by the fact that it is no easier for Black Philadelphians to become homeowners now than it was 30 years ago. 

According to the New York Times, “Robert S. Kaplan traded millions of dollars’ worth of oil and gas stocks and other individual company shares last year while he was head of the Federal Reserve Bank of Dallas.. His colleague, Eric S. Rosengren, bought and sold securities tied to real estate — which are sensitive to Fed policy — in 2020 while running the Federal Reserve Bank of Boston.”  These incidents serve to justify the public's lack of trust in the Fed, a decline that occurs at exactly the wrong time. Given these facts, we question the Board’s ability to fairly and ethically evaluate the public interest.  

We continue to suggest the central bank resist price increase tactics by major industrial and financial institutions. While we understand the desire to signal tapering, we continue to believe 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. The real risk is not inflation: it is civil war.

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