Business

The Fed Could End Inflation, But Experts Say Wall Street Would Hate It

Photo by Kevin Dietsch/Getty Images

Daily Caller News Foundation logo
Harry Wilmerding Contributor
Font Size:
  • The Federal Reserve’s decision to reduce its monthly bond purchases amid growing inflation has contributed to a surge in prices, benefiting billionaires and corporations while hurting lower-income Americans, multiple experts told the Daily Caller News Foundation. 
  • Ending inflation would pose a huge risk for Wall Street and the financial markets, Gregory Daco, chief U.S. economist at Oxford Economics, told the DCNF.
  • As prices continue to surge, corporate America will benefit in the short term while low-income people get slammed by inflation, Stephen Moore, former economic adviser to former President Donald Trump, told the DCNF.
  • “Billionaires don’t care about inflation, but people earning less than $50,000 a year get hammered by it,” Moore said.

The Federal Reserve’s decision to reduce its monthly bond purchases contributed to a surge in prices, benefiting billionaires and corporations while crushing lower-income Americans, multiple experts told the Daily Caller News Foundation.

As prices continue to surge, corporate America will benefit in the short term while low-income people get slammed by inflation, Stephen Moore, former economic adviser to former President Donald Trump, told the DCNF.

U.S. stocks surged Tuesday after a strong consumer spending report, with the S&P 500 rising 0.4% to 47000.90 the Wall Street Journal reported. The S&P 500, a publicly traded index featuring the 500 leading companies, is up 25% on a year-over-year basis as companies benefited from the central bank’s loose monetary policy.

“These factors have really created a hardship for working-class Americans because every time they go to the store, they are paying more for things,” Moore told the DCNF.

“While the average consumer has been slammed by the cost of living increasing faster than real wage growth over the last months, those with money invested in the stock market have done really well,” Joel Griffith, a research fellow at the Heritage Foundation, told the DCNF. (RELATED: Top Obama Economist Comes Out Against Biden Admin Over Inflation Surge)

Impact on the stock market

Ending inflation would pose a huge risk for Wall Street and the financial markets, Gregory Daco, chief U.S. economist at Oxford Economics, told the DCNF.

“An adverse tightening of financial conditions in response to faster and earlier-than-expected Fed tightening represents a risk for stock prices,” Daco said.

The growing inflation ultimately reduces the amount of each paycheck, Moore explained.

“What inflation does is it shrinks the value of your paycheck and the money you have in your wallet and savings account and makes people poorer,” Moore said. Inflation, Moore explains, is simply a form of a regressive tax, as it impacts the lowest income earners.

“Billionaires don’t care about inflation, but people earning less than $50,000 a year get hammered by it,” Moore added.

Additionally, the financial markets have benefited from the surge in prices, which allowed for a major increase in asset prices, Chris Markowski, the founder of Markowski Investments, told the DCNF.

Growing inflation has allowed companies to increase prices, ultimately driving overall profit, the Wall Street Journal reported. Almost two-thirds of the largest publicly traded U.S. companies have reported higher profits than the year prior, and 100 of these companies saw profit margins grow 50% above 2019 figures, according to data obtained by the WSJ.

Walmart reported higher than expected sales in the third quarter of 2021 on Tuesday after the company increased its prices as shoppers entered the holiday season, the Daily Caller News Foundation reported.

Home Depot reported a 9.8% increase in sales as the company benefited from increased prices and strong consumer demand. The strong earnings report drove Home Depot’s stock up over 6% on Tuesday, CNBC reported.

Why not end asset purchases entirely?

If the Fed were to end its asset purchases altogether, it would positively impact the economy as it would start bringing the prices down, Moore told the DCNF.

The Fed hasn’t ended its purchases because they fear it will shock the financial markets, Thomas Hogan, a senior research faculty at the American Institute for Economic Research, told the DCNF.

“The Fed is afraid that ending purchases altogether would be too big of a move at one time,” Hogan said. “The amount of bonds they have been buying has been so much that any exchange they fear would have a negative impact on the financial markets.”

The surge in prices is partially a result of the loose monetary policy from the Federal Reserve, Griffith told the DCNF. (RELATED: Retail Sales Grew In October As Shoppers Faced Higher Prices Entering The Holiday Season)

“There is no doubt the Fed is contributing to the inflation that we have,” Griffith said. “It is really disturbing to see the fed refuse to take responsibility for its actions.”

Instead, the Fed has shifted the blame for the growing prices on reopening and supply chain issues, Griffith told the DCNF.

Inflation grew at its fastest pace in 30 years, rising 0.9% in October and 6.2% year over year. Additionally, consumer sentiment also sunk to a 10 year low in November, with the Michigan Consumer Sentiment hitting 66.8 compared to October’s 72.5.

Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.