Inflation is coming soon … or at some point. Or is it?
The Federal Reserve is confident in its plan to prevent damaging inflation from creating havoc with the economy, but Deutsche Bank economists are dead set on the other side.
Deutsche forecast big problems if the U.S. continues to downplay potential warning signs and fail to combat the threat now.
It says inflation is a “time bomb” that will be evident – either soon or in 2023 and beyond.
Most reports on Deutsche’s opinion, however, are including some form of the following caveat: It’s not consistent with opinions of policymakers and Wall Street, and is not widely held by economists.
The Fed’s view is that its inflation pressures are transitory in light of the pandemic recovery and associated reopenings of businesses.
Looking at the Deutsche analysis reveals its concern if the Fed does not adjust policy and instead allows inflation to show a consistent increase as part of the broader economic plan.
“The consequence of delay will be greater disruption of economic and financial activity than would be otherwise be the case when the Fed does finally act,” Deutsche’s chief economist, David Folkerts-Landau, and others wrote.
For now, the Fed won’t raise interest rates or make any sweeping changes.
Economists including the financial ministers at the recent G7 conference, are in agreement, saying the current inflation increase won’t likely continue when we are clear of pandemic-related disruptions.
The Deutsche people are adamant, though.
“It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb,” Folkerts-Landau said.
“The effects could be devastating, particularly for the most vulnerable in society.”