The Fed Monetary Policy Giant Blunder – Part 1

Feds Miss the Mark on Why Inflation Remains Too Low for Economic Prosperity

The Federal Reserve Bank remarked this week that they had no idea why inflation remains below their target of 2%. They are baffled that their maintenance of lower interest rates and their current monetary policy is not working. Their blunder is enormous, as the answer is right in front of them.

The Fed has examined the fact that corporations are still reluctant to give employees raises despite the overemployment situation and the lack of skilled workers to fill openings. They are surprised by the fact that corporate America is not finding any need to increase wages despite the fact that unemployment claims have dropped to 1973 levels. Usually, as employment rates rise, so do wages and salaries. But that is not the case this time, even with lower interest rates, which are supposedly intended to fuel economic recovery.

Payroll is a key factor for inflation; as an economy expands, inflation is typically inevitable as wages and salaries rise, and then consumer products and services rise in price as corporations are forced to increase their consumer prices to offset the increase in payroll costs.

This has not happened even as the Feds risk dangerously high levels of money flowing through the system and drag out the inevitable need to raise the base interest rates charged to banks for overnight lending by the Feds.

The risks of too much money flooding the monetary system have been dismissed by the Feds for several years now, as they continue to cite the need for “eased money via lower interest rates”.

The question should be: Is the policy sound, or is it outdated and exploited, and if so, by whom?

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Martha Stokes CMT

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