How rising inflation could continue to impact U.S. economy

(NewsNation) —Inflation in the United States is climbing at its fastest rate in over 40 years, driving up the costs of everything from groceries to used cars, and it could get worse before it gets better, experts say.

Economics expert Christopher Thornberg, a founding partner of Beacon Economics, said Saturday on “NewsNation Prime” prices will continue to rise on virtually everything.

He pointed to the Federal Reserve injecting money into the economy during the pandemic, which he called a good move “up front” as a key reason inflation is climbing so high.

While the “aggressive” injection of cash was helpful in stabilizing the economy during the pandemic, the federal government did not withdraw the money in timely fashion, Thornberg argued, creating an influx of too much cash.

“The money supply has expanded like crazy and now anytime even a small ripple hits, for example a bump in oil prices, it suddenly gets ricocheted all over the economy and you end up, of course, with something on the order of an 8.5% year-over-year inflation rate,” Thornberg said.

Fears of a recession are mounting across the U.S. as Americans begin to pinch pennies as prices climb on goods and services, but Thornberg said while a recession is possible, it won’t be one caused by inflation.

“Inflation doesn’t cause recessions, however, it can cause an economy to slow down dramatically,” he said. “The real issue, the real fear, is the reality the Federal Reserve at some point still has to go out and mop up all of that excessive amount of cash they printed over the course of the last two years.”

If that happens, Thornberg said interest rates and bond rates will increase starkly.

His argument is based around the idea that the money pumped into the economy during the throes of the pandemic didn’t actually create wealth, but rather it “overstimulated the economy.”

Much like the 2008 recession, Thornberg predicts that if the Federal Reserve does pull cash out of the economy, the housing market could be hit severely.

“Our question here is not ‘can the Fed stick a soft landing?’ It’s too late for that,” Thornberg said. “We’re already seeing all the vestiges of an overheating economy, we have a widening trade deficit, the stock market is still one-third higher than it was pre-pandemic.”

The quicker the Federal Reserve acts, the less “pain” will be felt by Americans, Thornberg said. But with the hyper-polarized climate in Washington, he worries there will be no appetite to act.