Economics: Will The Biden Inflation Lead To A Biden Recession?

 (Drivebycuriosity) - Inflation in the US is red hot. In March consumer prices jumped 8.5% annually - the highest rise since 1981. Economists at the Federal Reserve Bank of San Francisco noticed that the US inflation rate is higher than in Europe & Asia ( reason). They refer to the massive stimulus program which is fighting the economic fallout of the Covid-19 pandemic. 

The Biden administration borrowed trillions of dollars from the Federal Reserve and pumped them into the economy and they send $1,200 stimulus checks to everyone. So trillions of dollars went immediately to  consumers & businesses. The spring flood of money induced a massive wave of spending and raised the money supply abruptly. Biden´s stimulus programs worked like showering the economy with money 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.

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  realclearmarkets). 

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 started 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 ).