My take: Harker and the inflation dragon


Inflation is back, and as Joe Biden once said about Obamacare,  it’s a big ******* deal.

That was the message from Federal Reserve Bank of Philadelphia CEO and former University of Delaware President Patrick Harker.

In remarks at a Delaware State Chamber of Commerce update, this week, Harker said the current price surge will not be a temporary phenomenon.

Further clouding the picture is the Russian invasion of Ukraine and its effects on everything from oil to farm prices.

The inflation wheels were  set in motion before the invasion for a multitude of  reasons that include the Covid-19 economic response, supply chain issues, a sharp rise in gas prices, rising home prices, a labor shortage that led to wage pressures, just to name a few.


Federal stimulus and tax cuts during the two most recent administrations gave the economy a “sugar rush” that contributed to the price surge and the deficit.  

Harker said the Fed will take actions to deal with surging prices and mentioned the publicly announced strategy that will raise interest rates in the coming months.

Financial markets have been nervous that the Fed will take even more aggress ve actions than first indicated. The Fed walks a tightrope between increases in interest rates and doing too little and allowing high inflation to stick around for years.

For some of us, it brings back not-so-fond memories of the last big  surge decades ago and efforts to get prices under control.

After dealing with a car with a blown engine (covered by warranty), I decided a more reliable vehicle was needed. 

The result was a car loan with a 17% interest rate. Years later, we were pleased to buy a home with more than 10% interest rate.

No one wants to go back to those days, but the Fed’s policy of keeping interest rates low, even during good times,  had side effects. It led to savings accounts with minuscule interest rates for the risk-averse who missed out on the stock market boom.

A global economy, big box stores, and, more recently, online shopping kept prices down but led to rapid growth in lower-wage positions that took the place of manufacturing jobs.  This seems to be especially true in Delaware.

The stock market surged, with many benefitting but  others, as noted earlier,  reluctant or unable to pay into 401(k) retirement plans left behind. Compunding the issue were companies, facing soaring health insurance costs, cutting back or eliminating  their march payments on 401ks. 

With more unfilled jobs than people, the Fed has some flexibility, but a couple of  wrong moves would trigger a hard landing (recession) or keep the corrosive effects of inflation sticking around for years. 

That’s the reason for Harker’s   “acutely  concerned”  comment in his Chamber speech- Doug Rainey, chief content officer.