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Greedy US Firms Not to Blame for Inflation, Fed Study Suggests
(Bloomberg) -- Don’t blame greedy corporations for the surge in US inflation over the last few years.
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That’s the message from a new study by Federal Reserve economist Berardino Palazzo. Once the huge fiscal and monetary support provided to the economy is accounted for, “corporate profits margins were not abnormally high in the aftermath of the Covid-19 pandemic,” Palazzo wrote in a Sept. 8 note.
Progressives such as Democratic Senator Senator Elizabeth Warren of Massachusetts seized on the rise in profit margins coming out of the pandemic as evidence of what came to be known as “greedflation” – companies taking advantage of stepped-up demand to jack up prices well in excess of their costs.
Read More: US Corporate Profits Soar With Margins at Widest Since 1950
Palazzo, though, argues that margins were boosted by “unprecedented” government support for small and medium sized businesses. They were also helped by the Fed’s accommodative monetary policy, which significantly lowered companies’ net interest expenses, he wrote.
“Once we adjust for fiscal and monetary interventions, the behavior of aggregate profit margins appears much less notable and by the end of 2022 they are essentially back at their pre-pandemic levels,” the study said.
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