Inflation could rise as high as 15 percent by late next year or early 2014, says the American Institute for Economic Research, if the Federal Reserve is unable to drain more than 25 percent of the reserves in the banking system. Steven Cunningham is director of research and education at the Institute.
“Fifteen-percent inflation is going to drive interest rates through the roof,” Cunningham says. “You could be looking at certainly more than 15 percent in mortgages and other financing costs. It would be hard to get raises to keep up with that.”
The inflation threat is being driven by the unprecedented amount of money the Federal Reserve pumped into the economy to combat the recent recession. To combat inflation, the Fed now has to drain substantial excess reserves from the banking system, which Cunningham warns may not be possible.