The U.S. economy is in an inflation-friendly environment. The Federal Reserve’s easy money policies and the U.S. government’s borrowing/spending activities have helped inflation to begin rising.
So, can the Federal Reserve’s new interest rate-raising plan control inflation’s rise? While the Fed plans for multiple increases, its new “higher” current rate range of 0.25%-0.5% is still in very low, easy money territory. A market-determined interest rate would be tied to the inflation rate outlook, so it would likely be at least 4% now. Moreover, it would probably take an even higher rate to tamp down inflation.
Another inflation catalyst awaits: Bank lending
Most inflationary periods have banks fully participating. However, they currently remain an underused money resource. JP Morgan Chase CEO Jamie Dimon, on his last earnings call, talked about the huge resources the bank is holding until demand and interest rates increase.
When banks lend, they create money (demand deposits), thereby increasing the money supply (and spending), just like the Fed. Therefore, they can spur inflation upwards as well.