“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

Ronald Reagan, the last time we had to face down the beast

Dear Reader,

“Not it,” researchers at the San Francisco Fed said. Or more appropriately, they touched the tip of their collective noses first on Friday. (You know the kids game where you know you’re guilty of something, but getting your finger up on your schause first absolves you of public shame?)

The San Fran Fed said it was government stimulus during the pandemic that led to current inflation… but kept mum on the zero interest rate policy the Federal Open Market Committee (FOMC) has been following.

In April 2021, the Fed said that it was going to aim for “inflation moderately above 2 percent for some time” before raising interest rates. That was a year ago. It’s now clocking in at 7.9% as we’ll see below.

The San Fran Fed researchers still laid their claim at the foot of fiscal policy, most notably in the Trump administration. Most of the commentary about their report came out over the weekend when folks were getting their grill on and thinking about the final four.

They “used an index of real disposable income to untangle how much support was received by U.S. households versus other Organization for Economic Co-operation and Development (OECD) countries,” Bloomberg summarizes the salient points for the Fed study. “They found two distinct peaks in the U.S. corresponding to the CARES Act, signed into law in March 2020 at the onset of Covid-19 (Trump), and the American Rescue Plan Act a year later (Biden).”

The Fed sample included these OECD: Canada, Denmark, Finland, France, Germany, Netherlands, Norway, Sweden and the U.K. Ultimately, the research shows the U.S. put more gimmie/stimmie checks than the other Western economies on lockdown. We’re surprised there wasn’t a last-minute dig at Vladimir Putin and “supply chain” issues.

Alas, a couple of highballs from the Treasury and another year of zero to negative rates later and U.S. inflation accelerated to 7.9% in February:

Source: Bureau of Labor Statistics

But, here’s the rub. The Statista chart above shows if you pull out federal stimulus, the average is still more than double the Fed’s target rate of 2%. Heh.

What’s going on here, one casually wonders. We had a chance to ask Christopher Leonard in our latest Wiggin Session and asked a very simple question: “are the Fed rate hikes too little too late?” Will inflation wreck the middle class like it almost did in the early 80s? Chris is the author of the best-selling book The Lords of Easy Money: How The Federal Reserve Broke The American Economy. I’m sure from that title you can imagine what his answer will be. You can check out the full session here:

To hear Christopher Leonard, author The Lords of Easy Money: How The Federal Reserve Broke The American Economy, click here.

Have we also just passed the greatest transfer of wealth in human history? We’ll take that question up with Chris tomorrow. Hint: Inflation, even in its current form, is insidious to the middle class, but roundly welcomed by the upper 1%. Tune in tomorrow to learn why…

Follow your bliss,

Addison Wiggin
Founder, The Wiggin Sessions

P.S. Even if you remove food and energy prices – “because who drives, needs to heat their homes, or eats food?” the 5’s Dave Gonigam likes to ask – the inflation rate is still above 5%, still at 40-year highs.

“Once inflation gets started,” we have oft quote former Fed Chair Paul Volcker from our documentary I.O.U.S.A, “It’s very hard to stop.” Mr. Volcker knew first-hand as he was head of the Fed the last time we saw inflation have its way with the economy.