20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices.
Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflating the money supply (eg by selling a huge portion of their accumulated financial assets). The latter implies a rise in interest rates that harms economic recovery and government borrowing costs, potentially reducing available fiscal stimulus.
I would like to read an analysis of how they plan on veeeery carefully extricating themselves from this situation but as far as I can tell the strategy is to wing it.
Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflating the money supply (eg by selling a huge portion of their accumulated financial assets). The latter implies a rise in interest rates that harms economic recovery and government borrowing costs, potentially reducing available fiscal stimulus.
I would like to read an analysis of how they plan on veeeery carefully extricating themselves from this situation but as far as I can tell the strategy is to wing it.