This Current Wave of Inflation Is Not Transitory. The First Wave Was.

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  • April inflation resists Fed efforts, printing at 0.3% for the month and 3.4% for the year.
  • Two waves of inflation: transitory "demand-pull" and long-lasting "cost-push" were caused by excessive money printing.
  • The Fed's plan to unwind its $8 trillion balance sheet is an unknown experiment with potentially disastrous consequences.

April inflation printed at 0.3% for the month and 3.4% for the year, stubbornly resisting Federal Reserve efforts to bring it down to 2%. This is a disappointment for those who expect the Fed to lower interest rates, but they continue to forecast a reduction sometime this year, say in September, perhaps even lowering the inflation target.

But the facts are: 1) the current wave of inflation will last a long time; and 2) the first wave would have ended without the Fed’s help because it was transitory.

Two Waves of Inflation

Inflation has plummeted from its 9% high in June 2022 to its current 3%. It was transitory, lasting just three years. This decrease would have occurred without Federal Reserve actions because supply chain disruptions caused by COVID were destined to get resolved as shipping containers eventually got unloaded. This form of inflation is called “demand-pull.” It is caused by demand for goods and services exceeding supply.

The next inflation wave will challenge the economy and the Fed. It will not be transitory. A pivot back toward a zero interest rate policy (ZIRP) will intensify the problem.