Karen Faulkner
Sharply contradicting the consensus on Wall Street, Deutsche Bank has warned that ongoing US Federal Reserve neglect of rising inflation in favor of social goals could leave global economies “sitting on a time bomb,” and cause worldwide financial distress, CNBC reports. The Bank’s forecast goes against the view of most Wall Street economists that current inflation pressures are temporary and will subside as pandemic-related conditions are resolved.
In its forecast, Deutsche Bank specifically took aim at current Federal Reserve policy: the Fed is tolerating higher inflation and is reluctant to raise interest rates or rein in its purchase program until it sees substantial progress in achieving its social goals, CNBC said. According to Deutsche Bank, the Fed’s approach could have devastating worldwide results.
The consequence of delay will be greater disruption of economic and financial activity than would otherwise be the case when the Fed does finally act,” Deutsche’s chief economist, David Folkerts-Landau, and others said in their report. “In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets.”
It may take a year longer until 2023 but inflation will re-emerge. And while it is admirable that this patience is due to the fact that the Fed’s priorities are shifting towards social goals, neglecting inflation leaves global economies sitting on a time bomb,” Folkerts-Landau said.
“The effects could be devastating, particularly for the most vulnerable in society.”
So far, Congress has approved over $5 trillion in pandemic-related stimulus so far, and the Fed has almost doubled its balance sheet to nearly $8 trillion, CNBC reports.
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