Increasing inflation is giving lots of problems to the Fed, economist Nouriel Roubini warned, saying that spikes in prices will continue and potentially limit the central bank’s actions.
With demand going through the roof, and with all the labor and supply problems, there is a boom going on for prices. Although the Fed claims these problems are “transitory,” Roubini — also named “Dr. Doom” for his scary negative predictions — warned that the Fed won’t be able stop the out of control growth using monetary policy.
“I think this rise in inflation will not be a temporary thing, it will be more longterm., Roubini said this week. “We have a huge fiscal and monetary stimulus, much larger and more longterm than we had after our global financial crisis.”
The NYU professor of economics stressed that a host of issues including supply chain problems, built-up demand from savings said to be around $2 trillion and companies raising wages to claim new workers.
Corporate America has also warned on earnings calls that input costs are going up, along with increases in commodities, food prices and home prices.
“Inflation expectation is going up, the dollar is getting weaker, and that means imported inflation and higher dollar priced commodities. And the Fed wishes to go past 2% with the risk of continuing inflation expectations., Roubini said.
The famed economist also stressed that policies “are turning pro-worker and pro-union due to there being such a large increase in wealth inequality” he said.
The huge stimulus is adding to the issue of booming prices, he said.
“So we will end up with higher inflation and a wage spiral., Roubini said.
“And the Fed cannot pull this back because of all the debt in the economy, if they are going to attempt to tighten this too soon, the system will collapse. So they are trapped by debt. They are in a fiscal dominance trap., he said.
Author: Blake Ambrose