Business

/

ArcaMax

Terry Savage: Inflation!

Terry Savage, Tribune Content Agency on

A new generation of Americans is about to face the impact of inflation – on their daily lives, their financial decisions, their investment choices, and their retirement lifestyle. While many pundits proclaim that this period of inflation will come to a quick end, history shows that inflation has always ended not with a whimper, but with a bang.

History tells us the only way to stop inflation is to slow the economic demand by slowing the economy. That slowdown comes from raising interest rates. Paul Volcker had the determination and discipline to do that in the early 1980s.

As Fed chairman, Volcker pushed the prime lending rate to 21%. Mortgage rates jumped to over 15%. And the economy moved into a steep recession. It worked – but not without pain.

Current Fed chair Jerome Powell tried to wish inflation away by pronouncing it transitory. But the Fed has just started to act. Interest rates remain historically low. And inflation is roaring.

The longer the Fed waits, the more likely we will see double-digit inflation in the coming months. In an election year.

Even if the Fed moves soon and more strongly than expected, policy always works with a lag. That means a slowdown (recession?) would come at exactly the wrong time – at election time!

 

Will Powell have Volcker’s guts to ignore politics and act strongly and immediately? That is the big question. But make no mistake: either way there will be pain. Higher mortgage rates will slow the housing market and spending.

But there’s more upward pressure on prices to come. Ukraine is Europe's breadbasket — and harvests this year are predicted to be from 20% to 40% lower this year, while their ports are blocked, limiting exports. Shortages can only lead to higher food prices — and even hunger.

Hiding from inflation

This coming period of inflation will be devastating for retirees living on fixed incomes. For 2022, Social Security checks jumped an astounding 5.9% (though impacted by higher Medicare premiums). The latest predictions suggest an 8.9% increase in Social Security checks for 2023. But that still likely won’t keep up with increased costs in everything from rents to food.

...continued

swipe to next page
 

Comments

blog comments powered by Disqus
 

Comics

Beetle Bailey Joey Weatherford Nest Heads Mike Shelton Pat Bagley Jimmy Margulies