If you think inflation will go away once Russia/Ukraine is resolved, you better think again. Here’s why.
“The Federal Reserve has held interest rates at historical lows for far too long,” says Doug Carey, President of WealthTrace in Zionsville, Indiana. “They have purchased trillions of dollars of treasury bonds and mortgage-backed securities in order to keep interest rates low. In 2007 the Federal Reserve balance sheet stood at less than $1 trillion. Today it is nearly $9 trillion. The money they created to purchase these securities has found its way into various markets and consumers’ wallets.
It’s easy to see now how this government stimulus ended up being over-the-top. While Washington might be forgiven for its initial 2020 foray into providing this money, it’s getting increasingly harder to justify what occurred in 2021. It has been the supply chain issue that has received most of the headlines concerning inflation prior to the Ukraine war. That is not without some justification. “Supply chain issues are making everyday goods harder to find which increases demand and prices,” says Dixon.
“Just-in-time inventory approaches and import infrastructures, particularly the inefficient ports of Los Angeles and Long Beach, couldn’t handle the increased demand,” says Kern. “Semiconductor shortages added to the upward pressure on new and used auto prices. Consequently, goods inflation rose dramatically. Goods spending continues to normalize, reducing some of the goods-related inflationary pressures.
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