KEY PRIVATE BANK ECONOMIC PERSPECTIVES:
Is the Economy Over Inflated? Major global central banks have long regarded a two percent inflation target as the guiding principle that drives economic policy. That’s true far and wide, from the Bank of Japan to Sweden’s central bank. And in the United States, former Federal Reserve Chair Ben Bernanke was so committed to a two percent inflation target, he enshrined it in official fed policy in 2012. But a decade later, we live in a world that Bernanke could have never predicted. In 2022, the economy is weathering a global pandemic that is becoming endemic, a military crisis in the Ukraine, soaring fossil fuel prices and an
inflation rate that as of January 2022 stood at seven percent. Of all those factors, an inflation rate that hasn’t been seen since the early 1980s is key to why the Federal Reserve has signaled its plans for a series of interest rate hikes beginning in the spring of 2022. And those hikes are sure to have a distinct economic impact to both consumers and businesses that rely on loans to help them purchase bigticket items like cars and furniture. But how did we get here? And how should businesses respond?
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The idea is to take the punchbowl away from the party,” Mateyo explains. And the Federal Reserve plans to do just that with a series of interest rate hikes.
10 | MIDATLANTIC DEALER NEWS | MIDATLANTICAUTODEALERSUNITED.ORG • APRIL 2022
“Two years ago, the [Federal Reserve] felt they had to do all they could to ensure that when we went into lockdown because of COVID the economy would stay face up,” explains Key Private Bank’s Chief Investment Officer George Mateyo. The tactic was stimulus. Interest rates were lowered to zero while money was pumped into the American monetary system. At the same time the federal government was also aggressively directing stimulus to consumers to the tune of trillions of dollars. “So, all of this money showed up in bank accounts of people sitting at home with
