The War On Inflation That Never Started Is Already Over
Eurozone data for May show that inflation keeps growing: it is now at 8.9% on an annual basis in Germany, the largest EU economy. As our readers know, the current runaway inflation began long before the war in Ukraine, due to central banks’ monetary policies. Thus, one would expect alarm bells to be going off at central bank headquarters, with a tightening of monetary policy, etc. But no, the ECB signals that they will keep interest rates “neutral”, while Federal Reserve officials are talking about the relaunch of quantitative easing (QE) in September.
In a long statement posted on the ECB blog May 23, Christine Lagarde announced that the bank has terminated the PEPP (Pandemic emergency purchase programme) and will terminate the APP (Asset purchase program) in Q3, but left open the question of rolling over those assets. As for central bank rates, the ECB has indicated its intention to increase them, and markets have adjusted their prices and long-term rates. However, she explained, a rate increase in the current situation is not monetary tightening but rather an adjustment toward neutrality. (Repeat: this is not monetary tightening.) Further decisions will depend on inflation trends.
As to the Federal Reserve, one of its public “signalers,” Atlanta Bank President Raphael Bostic said in a speech the same day that he thinks that after two more half-point rate increases, the Fed will “pause” its tightening of monetary conditions in September. Bostic had recently been an interest rate “hawk,” so major bank and Wall Street pundits have run with his comment to proclaim renewed QE money-printing by Autumn. The markets and futures are already betting on that.
The Fed minutes, published May 25, show determination for a double rate increase, but at the same time, they say that the Fed expects inflation to stop growing in 2023 and “normalize” in 2024.
What is behind the “counter-order, comrades” by the central banks? What Lyndon LaRouche has always insisted: within the current bankrupt system, central banks have no choice but a perennial, hyperinflationary bailout. Therefore, one can expect a re-launch of monetary expansion after the central banks annual meeting in Jackson Hole, Aug. 25-27. Shortly after the Jackson Hole meeting in 2019, the Fed implemented the latest phase of liquidity expansion by taking over the interbanking market and pumping in over $32 trillion in cumulative loans.
Today, stock markets and housing bubbles are bursting. Moreover, inflation has caused many producers to stop production and households to exhaust savings, so that the systemic dilemma arises again: risk a total breakdown of the economy to fight inflation or go for liquidity expansion, knowing that this will accelerate the hyperinflationary blowout?
As LaRouche indicated, there is no way out in the current system: go for bankruptcy reorganization, Glass-Steagall bank separation and new credit for productive investments.