(NewsNation) – Inflation in the United States is rising at the fastest rate in over 40 years, driving up the cost of everything from groceries to used cars, and it could get worse before it gets better, experts say.
Economist Christopher Thornberg, a founding partner of Beacon Economics, told NewsNation Prime on Saturday that prices of virtually everything will continue to rise.
He pointed out that the Federal Reserve was injecting money into the economy during the pandemic, which he called a good move “ahead” as a key reason inflation has soared.
While the “aggressive” cash injection has been helpful in stabilizing the economy during the pandemic, the federal government has failed to withdraw the money in a timely manner, Thornberg argued, leading to an influx of excess cash.
“The money supply has been expanding like crazy and now if even a small ripple hits, say a spike in oil prices, it’s going to suddenly bounce around the whole economy and of course you end up with something in the order of 8.5%. annual inflation rate,” Thornberg said.
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Fears of a recession are growing in the US as Americans start pinching pennies as prices of goods and services rise, but Thornberg said a recession is possible but not one caused by inflation.
“Inflation doesn’t cause recessions, but it can cause the economy to slow down dramatically,” he said. “The real problem, the real fear, is the reality that at some point the Federal Reserve has to go out and clean up all the excessive amounts of money that they’ve printed over the last two years.”
If that happens, Thornberg said interest rates and bond rates will rise sharply.
His argument is based on the idea that the money pumped into the economy during the pandemic didn’t actually create wealth, but “overstimulated the economy”.
Similar to the 2008 recession, Thornberg predicts the housing market could be hit hard if the Federal Reserve pulls money out of the economy.
“Our question here isn’t ‘can the Fed endure a soft landing?’ It’s too late for that,” said Thornberg. “We are already seeing all the signs of an overheated economy, we have a growing trade deficit, the stock market is still a third higher than before the pandemic.”
The faster the Federal Reserve acts, the less “pain” Americans will feel, Thornberg said. But given the hyperpolarized climate in Washington, he fears there will be no will to act.
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