It’s Only Getting Higher

There is no doubt that inflation is at the forefront of issues, which we are currently facing in American society today. Everyday items, such as meat, dairy, lumber, gas, etc. are all reaching far higher prices than what would have been forecasted pre-pandemic. At the end of the day, however, there is only one true force that creates inflation: the government. 

According to recent coverage by The Wall Street Journal, the Kremlin has stated that they will be shutting down the Nord Stream pipeline at the end of the month. Experts are unsure of whether this is merely unplanned maintenance, or rather an economic attack by the Kremlin. 

The Kremlin has already cut off 80 percent of the pipeline and if they were to cut off the remaining 20 percent of the pipeline by September, it would leave European reserves as only 75 to 80 percent. This would ultimately lead to a winter of rationing for most of Western Europe, according to the same report; which would then leave the European Union with a pressing choice as to whether to ration through winter, or purchase oil elsewhere. The latter of which would likely drive up gas prices here in the United States for the winter season. 

Now, don’t get me wrong – global headwinds have surely arisen with the war in Ukraine, as well as a global stance against the Kremlin, a slow down in the Chinese economy. However, as a citizen of the United States, it appears unacceptable to allow the actions of countries that are unfriendly toward the United States to dictate the economic conditions of our country so drastically. Afterall, the U.S. is a hegemony that should not be undermined by countries like Russia and China. 

President Joe Biden has been lacking in efforts counteracting Russia, exacerbating the ongoing issue of inflation in the U.S. 

Biden’s most recent solution to the global headwinds was another three billion dollar aid package to further support the Ukrainian armed forces. This recent three billion dollar aid package is one of many U.S. military aid packages, which in total have currently reached up to 13.5 billion dollars, according to the U.S. Department of Defense

Further, Biden has spent 1.9 trillion dollars on arguably unnecessary pandemic stimulus, his Inflation Reduction Act, as well as his student loan forgiveness program. 

His most recent student loan forgiveness program was described by Jason Furman, a top economist of Obama’s administration, as “pouring roughly half [a] trillion dollars of gasoline on the inflationary fire that is already burning…” 

Some critics have further questioned Biden’s Inflation Reduction Act, claiming that the policy does not truly reduce inflation in any way. The Washington Post published an article which described the act as another social spending package that cuts down some of the current costs of goods, but will still need to be paid back by American taxpayers. 

The Inflation Reduction Act would invest nearly $400 billion in energy security and climate change proposals, aimed at reducing carbon emissions by approximately 40 percent by 2030. The bill also directs $80 billion in funding to the Internal Revenue Service, aimed at helping the underfunded agency hire more auditors. The impact on inflation, however, “is statistically indistinguishable from zero,” according to the Penn Wharton Budget Model

The FED is currently attempting to do their part in stopping the fight against the pending financial downfall that would begin to occur once inflation surges above 10 percent. Let’s put it this way: if annual inflation subsequently rises to 10 percent, the annual decline in your inflation-adjusted loan balance will outweigh your interest costs. 

The FED has made inflation their number one priority over the course of the past year, after originally stating that it was transitory in Q3 and Q4 2021. The FED has since made the commitment to 0.5-0.75 point rate hikes until the issue is resolved. 

FED chairman Jay Powell saying, “We must keep at it until the job is done,” seems to suggest that the FED believes by taking their foot off the hypothetical gas pedal, it may end up being costly in its battle versus inflation. 

The FED still has a ways to go towards meeting their goal of bringing inflation down to two percent, as opposed to its current 8.5 percent. 

Overall it seems safe to say that markets will likely remain tumultuous through the later half of 2022, with inflation being their greatest issue. 

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