Economics: Will The Biden Inflation Cause A Biden Recession?

 (Drivebycuriosity) - Inflation in the US is red hot. Consumer prices jumped 7% annually - the highest rise in 40 years. The price explosion is partly caused by the Federal Reserve who pumped trillions of dollars into the US banking system to counter the economic damages from the pandemic. But the inflation is made worse by the Biden administration. The government hiked government spending massively and send $1,400 stimulus checks to everyone. So trillions of dollars went immediately to the consumers & businesses and induced a massive wave of spending. Biden´s stimulus programs worked like showering the economy via helicopters (Milton Friedman`s famous helicopter money).

Unfortunately the demand push, caused by the explosive money growth & massive government stimulus programs, meets a restrained supply of goods & services because the pandemic interrupts many supply chains. As a result the demand for goods & services rises much faster than the supply which is getting compensated by rising prices.

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The jump of the inflation rate is supported by sharply rising prices for oil & gas, partly caused by anti fossil energy politics which discourage oil & gas production.  "The Biden administration exacerbated the inflation of gas prices by both restricting the supply of oil and pressuring banks and asset managers to divest from traditional energy projects" writes The Hill. The magazines adds: "The rise in prices can be attributed to political pressure from the administration to reel back oil and gas production. Christopher Wood, Global Head of Equity Strategy at Jeffries, claims that the “political attack” on oil and gas “has removed the incentive for investment in the sector despite its lingering importance” ( cnbc ). 

The Fed must stop the accelerating inflation before it gets out of control. Therefore the monetary authority has to hike interest rates significantly to break the inflation expectations. Sharply rising interest rates may create a shock and could slow down consumer spending & investments considerably. A restrictive Federal Reserve policy (interest rate hikes) has been historically the main cause for a recession - next to oil price hikes. In 1980 the Federal Reserve hiked her interest rate (federal funds rate) to a high of 20% to combat a double-digit inflation which caused the "double-dip" recessions of 1980 & 1981/82 ( wikipedia). 

Unfortunately the Biden administration is forcing the Fed by starting an antitrust crusade against Amazon and other companies which have been curbing the inflation by being very efficient and are offering low prices. The crusade is throwing sand into the gear of the economy and could make a recession even worse (driveby ).