Federal Reserve officials this week reiterated their support for loose monetary policy and downplayed the threat of inflation, despite a recent report that showed in April the Consumer Price Index (CPI) increased at its fastest rate in more than a decade.
The stay-the-course approach from Fed officials defies criticism from some economists on the left and right over fears of a persistent spike in inflation that could derail the economic recovery.
Such critics rightly worry about continued inflation but misunderstand what's causing it, according to legendary investor and Columbia Business School Professor Bruce Greenwald.
In a new interview, Greenwald — whom The New York Times once called "a guru to Wall Street's gurus" — says inflation will continue to be "brutal" in the short run but it has nothing to do with monetary or even fiscal policy. Because Fed policies didn't cause the inflation spike, the central bank lacks the capacity to rein it in, he said.
Instead, Greenwald says the Biden administration's support of a waiver of intellectual property rights for COVID-19 vaccines "scared the crap" out of companies that fear adverse government intervention in their day-to-day business. In turn, companies have raised prices to get ahead of other potential government actions, Greenwald said.