Only those with assets benefit from Inflation
Much is made of the conflict between central banks’ monetary options with the background of a rising unemployment and above target inflation. Inflation was already embedded into the system before the war in the Gulf, and Kevin Warsh, who now serves as the Chair of the US Federal Reserve, has clearly expressed his monetarist views. Rather than viewing rising prices strictly as an external “cost-push” event such as surging oil prices or tariffs, Warsh contends that inflation is a choice driven by central bank policy and money supply.
While inflation is often blamed on sudden supply-chain disruptions, higher wages, or geopolitical shocks, Warsh has argued that external shocks only cause temporary price adjustments and that if cost-push factors lead to sustained inflation, it is ultimately because the Federal Reserve addressed shocks such as Covid and the 2008 financial crash through loose monetary policy. During such periods, Warsh has advocated ignoring the short-term noise in favour of the "trimmed mean" and median inflation measures which strip out volatile outlying data. By doing so, he looks for the underlying, structural trend of inflation to ensure policy is based on true monetary conditions rather than temporary supply side disruption.
As Fed Chair, Warsh has promised to reduce the Fed’s balance sheet and limit its interventions in financial markets, and because he believes inflation is a direct result of excess money supply, he advocates tight financial discipline to preserve the central bank’s credibility. The US economy has faced persistent inflation pressures stemming from geopolitical supply chain disruptions and tariff policies, while at the same time the administration has used strong language to undermine the previous Fed Chair and pushed hard for lower interest rates to spur growth.
In 2008, quantitative easing (QE) dramatically expanded the Federal Reserve’s balance sheet from less than $1 trillion to over $2 trillion. However, much of this money was initially trapped as excess reserves held by banks rather than circulating in the broader economy and so did not lead immediately to a spike in inflation. The largest spike in US money supply occurred during the Covid pandemic, when M2 grew by over 25% in a single year as the government injected trillions of dollars into the economy via stimulus and expanded lending programs.The money supply as measured by M2 has grown an average of 7.7% a year since 2008 because of rapid growth in bank reserves and currency controlled by the Federal Reserve. However, this is only slightly higher than the average yearly change of 7% between 1959 and 2007.
Between 2022 and 2024, the US money supply as measured by M2 experienced a significant contraction, before starting to recover. M2 peaked at approximately $21.9 trillion in March 2022, and shrank by between 5% and 10% over the course of 2022 and 2023 as the Federal Reserve raised interest rates, dropping to roughly $20.8 trillion by late 2023. This marked one of the largest declines in the US money supply in nearly a century. By 2024, the Federal Reserve paused its aggressive rate hikes, leading to a stabilisation and eventual return to money supply growth. In 2025 M2 money supply grew by approximately 4.6%, representing the largest annual increase since 2021 and marking a significant shift away from post-pandemic monetary contraction.
Given the implied focus of the incoming Chairman of the Federal Reserve, this trend is important and is likely to govern the Fed's monetary policy. However, with consumption depressed as a greater proportion of incomes is diverted into energy and food, and with wages growing at below the level of inflation, there appears little justification for either fiscal or monetary tightening. To see virtue in an outcome that further depresses middle America’s living standards is perverse, as inflationary pressures are exacerbating growing inequality between those Americans that benefit from rising asset prices and those with mortgages and living off median earnings.
Wealth inequality and income disparities in the United States are at their highest levels in decades, with the top 1% holding a share of national wealth that exceeds the middle and working classes by more than a 100x. The gap between the ultra-rich and the everyday citizen continues to widen due to several core economic, structural, and political factors. Over recent decades, the greatest income and wealth growth has accrued to the very richest Americans. Although the erosion of labour unions and collective bargaining has reduced the negotiating power of lower and middle-income workers, it is the rapid acceleration of AI, automation, and information technology that continues to increase the demand for highly skilled, specialised workers, while displacing or depressing wages for lower-skilled labour.
Norms regarding executive compensation have shifted, with CEO pay soaring from roughly 40 times the average worker's salary in the 1970s, to over 350 times today. Moreover, structural changes in tax policies, including legislation such as the Tax Cuts and Jobs Act, have provided significantly larger tax breaks and benefits to corporations and the ultra-wealthy compared to low-income households, and the wealthiest 0.1% of households now control over 18% of the country's total wealth.
The outlook for the vast majority of Americans continues to deteriorate. Those on average earnings and with mortgages, who do not benefit from Dollar debasement and asset price inflation, are not currently on President Trump's policy radar as he insists that he does not think about Americans’ financial situation as motivation to make a peace deal with Tehran.
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