Goldman Sachs has warned investors that a midterm election season focused on inflation could prove to be a self-fulfilling prophecy, forcing the Federal Reserve to tighten monetary supply even more aggressively to prevent a wage-price spiral from becoming out of control.
“Potential further increases in food and gas prices are the main upside risk to consumer inflation expectations,” said the company’s analysts. “But another key upside risk is the coming barrage of political advertisements highlighting high inflation ahead of the midterm elections in the next few months.”
“Inflation expectations have historically been quite sensitive to political outcomes, and voters report that inflation will be one of the main issues this fall.”…