- Economist Roger Bootle says monetary and fiscal policy is leading to “significant inflationary danger.”
- Bootle said demographic changes, US-China tensions, and costly climate policies will only add to the problem.
- The Fed and a number of other market commentators have maintained inflation will be “transitory.”
- Sign up here for our daily newsletter, 10 Things Before the Opening Bell.
Monetary and fiscal policies are leading to “significant inflationary danger,” according to Capital Economics chairman Roger Bootle.
In an interview with Bloomberg on Wednesday, Bootle repeated his concerns about inflation and criticized other economists and market commentators for their view that monetary and fiscal policies aren’t important when it comes to rising costs.
“Money supply doesn’t matter. The stance of policy doesn’t matter. You’ve got all these cost reductions, and you’ve got competition. I find all this terribly funny because there’s been globalization in Venezuela, Zimbabwe, Turkey, and all the other countries that have had quite rapid inflation,” Bootle said.
“When it comes to it, it’s the stance of monetary policy, the buildup of these big-money balances in the hands of households. The stance of fiscal policy. The very low-interest rates. I think this is what really makes this a particularly dangerous thing,” he added.
Bootle went on to say that current inflationary pressures are not on the scale of what was seen in the 1970s, but demographic changes and increased costs due to US-China tensions and climate policies will add to inflationary pressures moving forward.
There has been a heated debate among economists, banks, and analysts about inflation recently. Some argue, as the Federal Reserve does, that inflation is only “transitory” and will settle down once supply chain issues resolve themselves.
Others, like Bootle, argue that a rapid increase in the money supply along with dovish Fed policy could lead to sustained rising costs.
Despite the pandemic coming to an end, the Federal Reserve has pledged to maintain accommodative policies, including low-interest rates and aggressive asset purchases, until “substantial further progress” has been made toward employment goals.
After last week’s jobs report showed the US economy added 559,000 nonfarm payrolls in May, market commentators wondered if the Fed might change its tone.
Comments from Cleveland Federal Reserve President Loretta Mester in a CNBC interview on Friday showed the Fed appears to be doubling down on its view that substantial further progress needs to be made before they change policy.
“I view it as a solid employment report…But I would like to see further progress,” Mester said.
Roger Bootle’s new comments come on the back of Deutsche Bank’s recent warning of a global “time bomb” due to rising inflation if the Fed doesn’t act.
“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 wrote in a note to clients.
“In turn, this could create a significant recession and set off a chain of financial distress around the world, particularly in emerging markets,” the team added.