Inflation will skyrocket if the Federal Reserve does not raise interest rates by at least 50 basis points next week.
Recently released data indicates that the US economy added 678,000 jobs in February. That strong number would be great news if it occurred in an economy with stable prices. But considering the inflation rate is about to jump to double digit levels, the jobs report is signaling an overheated economy.
In January, 467,000 jobs were added and the numbers for the prior two months were revised upward. That should be great news because numbers that high indicate that the economy is growing much faster than previously thought.
Thursday's CPI to Be Another Shock
The consensus view from economists seems to be that the economy is currently growing at less than a 3% rate. However, for that many jobs to be filled in two months, the economy must be growing much faster. The first official estimate for gross domestic product (GDP) growth in the first quarter won’t be available until the end of April.
Other data also seems to be pointing to faster growth. That’s good as long as we have growth with price stability. Unfortunately, we have the worst inflation in 40 years. And it is about to get even worse. The Consumer Price Index (CPI) for this month will be released on Thursday. It will show a very large increase. The high rate will continue for at least the next three or fours months. That means we could see double digit inflation by late spring.
While supply chain issues do have a slight impact on inflation, there are much more significant causes. Energy inflation and wage inflation are the main drivers on the cost side. The more impactful causes are on the demand side.
Huge increases in government deficit spending and the shockingly irresponsible expansionary monetary policy of the Federal Reserve are the causes for massive amounts of excess demand. Since the current administration will not reduce spending, it is up to the Fed to act very aggressively to stop a level of inflation that will be very problematic.
Next week, the Fed will hold their meeting. According to Chairman Jerome Powell, Federal Reserve governors are likely to raise interest rates by 25…